UK government announces 'Mansion House Accord' to boost private market investments
Published on 16th May 2025
Government looks to workplace pension industry to increase investment in UK business and major infrastructure projects
Under the "Mansion House Accord", announced on 13 May, seventeen of the UK's largest workplace pension providers have agreed to invest at least 10% of their defined contribution (DC) default funds into private markets by 2030. Half of this investment will be allocated to the UK. Private markets is defined as being the following unlisted asset classes: equities, property, infrastructure and debt/credit.
Default funds are the primary vehicle for workplace pensions. The total pension assets in the scope of the new accord is estimated to be around £252 billion.
The accord's stated purpose is to "facilitate access for savers to the higher potential net returns that can arise from investment in private markets as part of a diversified portfolio, as well as boosting investment in the UK. As always, the priority is achieving better outcomes for savers."
Regulatory reforms
Recent regulatory reforms have facilitated the deployment of capital from DC schemes into private market investments.
The Financial Conduct Authority (FCA) introduced a new regime for investing into long term asset funds (LTAFs) in October 2021. This enables pension schemes to invest into open-ended authorised and supervised fund structures able to hold more illiquid assets than other authorised funds.
LTAFs provide easier, simpler access for DC investors to long-term private markets investments such as infrastructure and private equity – investments which can offered portfolio diversification and attractive long-term net returns to pension funds.
In addition, HM Treasury and the FCA have recently provided the necessary framework to underpin the Reserved Investor Fund (RIF) with effect from 19 March 2025 (see the Unauthorised Co-ownership Alternative Investment Funds (Reserved Investor Fund) Regulations 2025 together with an explanatory memorandum).
RIFs are designed to complement and enhance the UK’s existing funds regime by meeting industry demand for a UK-based unauthorised contractual scheme with lower costs and more flexibility than the existing authorised contractual scheme. The RIFs are open to professional and institutional investors and are especially attractive for investment into commercial real estate.
Infrastructure and clean energy
The government has framed the accord in terms of delivering on its Plan for Change by "driving funds into major infrastructure projects and clean energy developments". As the additional funding level is due to be reached by 2030, it may also assist with the government's related aim of achieve its "clean power goal" of generating at least 95% of Great Britain's electricity consumption from clean sources by that year.
Industry heads, quoted in the government's press release, have highlighted the need for the government to facilitate a pipeline of suitable investment opportunities. This ties in with the government's 10 Year Investment Strategy, due in June, which it has said will contain an "infrastructure pipeline" to give a clear sense of its long-term infrastructure priorities.
While much of the emphasis in the announcements relates to other asset classes, the accord does apply to property, and so could provide a further boost to the government's ambitious plans for housing delivering in this parliament.
Construction projects
Increased long-term investment in private markets, particularly in infrastructure and real estate, could provide more funding opportunities for construction projects. For example, Now Pensions, one of the signatories, has announced that it will be making its first investment in the UK private market with an affordable housing project. However, the accord is still subject to the funds' fiduciary and consumer duty to act in the clients' best interests. This means that investment in large infrastructure projects will only come if it would maximise returns for pensioners.
Nevertheless, any bid to encourage funds to direct their investments towards the private UK market is likely to be welcomed in the infrastructure and construction sectors and, if the government wants to make a success of this policy, it may be incentivised to instigate regulatory change and help facilitate a pipeline of high quality investment opportunities.
Trust-based pensions
Meanwhile the trustees and employers of trust-based pension schemes, and local government pension scheme administering authorities together with LAPS asset pools, are waiting for the government to release the final report on phase one of its Pensions Review and the responses to three consultations (one relating to the DC landscape, one relating to the local government pension scheme and one relating to defined benefit schemes).
All of these consultations contain proposals intended to support a transition to a pensions landscape where there is smaller number of larger schemes and funds, and those larger schemes and funds are better able to consider investment in UK productive assets, infrastructure and green energy. Here too there is a question as to whether the government will legislate – or reserve a power in legislation to take further action – if these reforms do not generate the level of UK investment it is hoping for.
Osborne Clarke comment
Although it is difficult to predict the impacts of the accord, as it is unclear how much money will flow to each of the asset classes covered by it, additional funding will clearly be welcomed by the energy, infrastructure (and potentially housing) sectors.
Tomi Agbonifo, paralegal at Osborne Clarke, assisted in the writing of this Insight
