The last thing pension funds need is a state mandated investment strategy
UK pension funds don’t have the capabilities to deliver a mandated 10 per cent minimum allocation to private assets, says Toby Glaysher
By threatening to enforce a 10 per cent minimum allocation to private assets, the government risks turning the Mansion House reforms from a visionary ambition into a blunt instrument. The premise behind the original concept, to nudge pension funds towards private markets voluntarily, was already pushing the boundaries of what’s possible. Now, with reports of mandatory thresholds, we are venturing into dangerously prescriptive territory, that could do more harm than good.
Unlocking pension capital for productive investment in sectors like infrastructure, private equity and private credit is, in principle, a sound idea. The trouble is that what is being proposed overlooks the operational, technological and governance realities that UK pension funds face today. Unlike their larger and more experienced counterparts in Canada, most British pension schemes are still relatively inexperienced in managing diversified portfolios with both public and private assets at scale.
Private markets have unique challenges
Private markets bring with them a set of challenges that are fundamentally different from publicly traded assets. They are opaque, illiquid, expensive to manage and often updated infrequently. It’s one thing to aspire to hold these investments for their long-term return potential. It’s quite another to do so while maintaining cost-effectiveness, liquidity and accurate pricing — core tenets of responsible pension management.
Today’s fund managers are under pressure to cut fees, deliver returns sooner and access emerging asset classes. Many are adapting to a world where information is fragmented, infrastructure is outdated, and risk monitoring is inconsistent. The last thing they need is a state mandated investment strategy imposed from above without consideration of how these mandates are to be implemented at ground level.
The technology underpinning most UK pension schemes is still trying to handle what is being asked of it. Integrating platforms that can simultaneously manage private credit, private equity, and infrastructure investments alongside the traditional bonds and equities is not only expensive but years away from being feasible for the average fund. Without proper reform of the operational backbone, new asset allocations will be little more than accounting exercises. Blind commitments to illiquid investments without the tools to monitor, value, or unwind them safely.
This hybrid world also creates stark valuation mismatches. Public assets can be marked to market daily, but private holdings might only be revalued once a year. That temporal disconnect is more than a technicality — it affects everything from pricing accuracy to liquidity stress testing. How do trustees assess their fund’s value at any given moment? How can beneficiaries be assured their pensions are safe in a downturn?
The Chancellor’s push risks confusing ambition with coercion. The UK does need a more dynamic pension system. But pension reform must be systemic, not superficial. Mandates are not a substitute for capability. Until that’s recognised, the Mansion House dream may well become a nightmare for UK pensions.
Toby Glaysher is chairman of Finbourne Technology