UK Pension Mandates: Regulatory Overreach or Growth Catalyst?

The UK government's push to force pension funds into private markets by 2030 has ignited a fierce debate over whether regulatory overreach or market readiness will define the outcome. While supporters argue that mandatory allocations to sectors like infrastructure and private equity will fuel economic growth, critics warn that the timing—amid rising recession risks and liquidity concerns—could backfire. Meanwhile, technological advancements in private market accessibility, exemplified by companies like Oando, suggest there's a middle path. Here's why a balanced approach is critical.

The Regulatory Hammer: Mandates vs. Voluntary Growth

The UK's Pension Schemes Bill 2025 aims to redirect £30 billion into private markets by mandating that pension funds allocate 10% of assets to such investments by 2030, with 5% reserved for UK-focused projects. The government's “reserve power” threatens to enforce these targets if the industry fails to meet them voluntarily through the Mansion House Accord—a pact signed by 17 major pension providers.

Proponents like Globacap's Myles Milton argue that technology has made private markets more accessible, with platforms like LTAF (Long-Term Asset Funds) and RIF (Reserved Investor Funds) simplifying compliance and liquidity management. These tools, combined with the shift to “megafunds” consolidating smaller pensions into £25 billion+ pools, could amplify returns and scale impact.

But critics, including Aegon's Steven Cameron, counter that forced allocations risk locking funds into illiquid assets during an economic downturn. With UK private equity allocations still at a meager 2% of pension assets, the leap to 10% in eight years is ambitious—and potentially reckless.

Oando: A Case Study in Private Sector Success

Nigerian energy giant Oando exemplifies how private investments can thrive without mandates. The company raised $1.2 billion in 2023 via a private equity-backed infrastructure fund to expand solar and gas projects, leveraging global capital while avoiding the volatility of public markets. This success hinged on voluntary partnerships, tailored risk management, and a focus on long-term returns—qualities that could be stifled by regulatory diktats.

The Risks of Overreach

The government's timeline assumes a “best-case” scenario, but economic headwinds loom. The Bank of England's hiking of rates to 5% has already slowed infrastructure spending, while geopolitical tensions and energy price volatility cloud the outlook. Forcing pensions into private markets now could lead to:
1. Liquidity Traps: Megafunds may struggle to exit underperforming assets, risking member payouts.
2. Misallocation: Overemphasis on UK assets could miss opportunities in faster-growing global markets.
3. Trust Erosion: Savers might flee pensions if forced investments underperform, undermining the system's stability.

The Market's Readiness: Tech as a Bridge, Not a Mandate

Technology has indeed made private markets more navigable. Platforms like PensionMetrics and DealCloud now offer real-time data on fund performance and liquidity, reducing information gaps. However, these tools are most effective when used voluntarily. For instance, the LGPS (Local Government Pension Scheme) has already boosted private allocations to 7% by partnering with managers who share ESG metrics and cost transparency—a model that could scale without coercion.

The Balanced Approach: Voluntary First, Mandates Last

The solution lies in prioritizing the Mansion House Accord's voluntary framework while keeping the reserve power as a last resort. Funds should be incentivized—not compelled—to adopt private investments through:
- Tax breaks for pension providers that meet ESG-aligned private market benchmarks.
- Liquidity solutions like secondary markets and sidecar funds to address exit risks.
- Transparency mandates requiring private fund managers to publish performance data quarterly.

Investment Implications

• Favor funds that organically pursue private markets: Look for managers like Legal & General or Aviva, which have already committed to the Mansion House Accord's 10% target.
• Avoid forced allocations: Steer clear of pensions that rush into UK infrastructure projects without rigorous due diligence.
• Watch Oando-like innovators: Companies that blend private capital with scalable, tech-driven projects (e.g., renewable energy or fintech) could offer safer, higher-yielding opportunities.

Conclusion

The UK's pension reforms are a high-stakes experiment. While the government's goal of boosting private market growth is laudable, mandating allocations risks undermining the very trust and flexibility needed to navigate economic turbulence. By leaning on voluntary commitments and technology-driven solutions, the UK can avoid overreach—and let the market decide where capital flows best.

As Oando's success shows, private investments thrive when they're strategic, not scripted. The pension system should follow suit.