Over the past decade, LGPS Central has increased its allocation to private markets to more than one-sixth of its £30 billion in assets under management. The pooled UK local authority pension fund reflects how major institutions are changing asset allocations away from public markets and towards private markets, in pursuit of – according to Nadeem Hussain, head of private markets at LGPS Central – better returns.
This sea-change in investment is also likely to be bolstered by investment vehicles developed in recent years to channel money from smaller pension schemes and less wealthy individual investors into private markets – for example the European Long-term Investment Fund in the EU, and the Long-term Asset Fund in the UK.
Policy makers in both areas are supporting the trend towards private markets because they want to strengthen economies by getting investment to grassroots private companies. Perhaps that support is particularly strong now in the UK, where two successive governments have, through the annual ‘Mansion House’ speeches of their Chancellors, committed to bridging sources of investment with the private markets.
The former Conservative government, for example, announced an industry-led compact in 2023, committing many of the UK’s largest defined contribution pension providers to the objective of allocating at least 5% of their default funds to unlisted equities by 2030.
More recently, the Labour Chancellor, Rachel Reeves, built on this with initiatives to boost private equity investment. She emphasised reforms to enhance the role of pension funds in private equity investment, targeting the creation of large “megafunds” modelled on Canadian and Australian systems. These consolidated funds aim to unlock approximately £80 billion for investments in UK infrastructure and high-growth businesses.
Secondaries market
The reforms also include the proposed Private Intermittent Securities and Capital Exchange System (Pisces) – a major initiative announced in the speech. Set to launch by May 2025, Pisces is a regulated market enabling intermittent trading of shares in private companies. Essentially a secondaries market in private shares, it is designed to fill the gap between private funding rounds and public markets, offering a stepping stone for innovative companies to scale. The platform will focus on structured trading events, allowing participation by institutional investors and certain high-net-worth individuals, with a tailored regulatory framework to streamline disclosure and compliance costs.
As private markets get long-awaited boosts to their infrastructure, the public capital markets – at least in the EU – continue to wait for their adrenaline shot. The Capital Markets Union, a project designed to increase participation in EU capital markets, stalled several years ago but is now being championed by Mario Draghi and Enrico Letta, who have both published analysis on finance and competition in the EU in recent months.
Right now, however, the future looks private and asset managers who have wrestled with whether or not to launch ETFs in recent years are likely asking themselves if private markets structures – or some convergence of private and public markets – should also be in their product offerings.
This article was first published in the November/December 2024 issue of Funds Europe.
