Research

UK pension funds are failing to support future generations by underinvesting in venture capital and private equity more broadly, argued attendees and speakers at last month’s Women’s Venture Capital Summit Europe 2025 in Windsor, UK.

UK pension funds commit just 3% of their assets to UK-managed private market funds, with less than 1% going to venture funds, according to a British Private Equity and Venture Capital Association (BVCA) report. Meanwhile in the US, pensions commit on average 9% of their assets to private markets with some major schemes investing as much as 18%. European pension funds are similarly more supportive of private market funds than their UK counterparts, accounting for 24% of all capital committed to European private funds in 2023, according to Invest Europe.

This represents a massive missed opportunity. UK pension schemes manage over £3 trillion in assets, yet they’re systematically underinvesting in the very innovation that could drive future returns and economic growth. As one speaker noted, “UK pension schemes are potentially missing out on supporting their own legacy and creating value for future generations.”

The UK government has recognized this gap. The Mansion House Accord, launched earlier this year as part of broader efforts to channel pension fund capital into “productive assets,” aims to unlock institutional investment in private markets, including venture capital. The signatories to the pact pledged to invest 10% in economy-boosting assets such as infrastructure, property and private equity by 2030, with at least 5% ringfenced for the UK. But conversations at the conference revealed the challenge isn’t just about policy—it’s about fundamental structural mismatches.

The scale problem is real. Large pension funds find it inefficient to write small checks across multiple venture funds. As one institutional investor explained, “It’s not the most efficient use of pension fund investment teams to deviate across lots of very small ticket sizes.” The solution isn’t obvious: do you focus on later-stage funds with larger ticket sizes, or find ways to aggregate early-stage exposure?

The expertise gap compounds this challenge. Unlike their US counterparts, many UK pension schemes lack in-house venture capital expertise. They understand bonds, equities, and real estate. Venture capital—with its power law distributions, J-curve dynamics, and decade-plus time horizons—feels foreign and risky.

Yet the conference discussions revealed a critical misunderstanding about venture’s liquidity profile. When analyzed properly, venture funds often return invested capital faster than buyout funds, particularly in the first half of their lives. One LP noted that “venture funds were returning our invested capital faster than buyout,” challenging the conventional wisdom that venture is the “most illiquid thing we do.”

The vintage diversification argument also works in venture’s favor. Unlike other asset classes, venture’s cyclical nature means consistent deployment across vintages can capture different market conditions. But this requires discipline that many pension funds struggle to maintain during market downturns.

European venture capital desperately needs this institutional capital. The funding gap between US and European companies becomes dramatic at later stages—by Series C and beyond, US companies are raising multiples of what their European counterparts can access. This isn’t about company quality; it’s about capital availability, speakers argued.

The Brexit factor adds urgency to this dynamic. One fund manager noted they’re spending more time in “Australia, Canada, Northern Europe” for fundraising, suggesting UK-based managers may need to look beyond domestic LPs. This creates a vicious cycle where UK pension funds miss out on backing UK-based innovation.

Climate and health technologies represent a particular opportunity. These sectors align with pension funds’ long-term responsibility mandates while addressing massive market opportunities. The transition to net zero requires unprecedented capital deployment, much of it in areas where European companies lead globally.

The path forward requires structural innovation. Some possibilities discussed included fund-of-funds structures that provide pension schemes with diversified venture exposure, co-investment opportunities that allow larger ticket sizes, and hybrid models that combine venture returns with more traditional asset characteristics.

Government initiatives like the Mansion House Compact can help, but they need to address practical barriers: investment committee education, risk framework adjustments, and performance measurement systems that account for venture’s unique return patterns.

The irony is palpable. At a time when venture capital has never been more critical to economic competitiveness—from AI to climate tech to biotechnology—the UK’s largest pools of capital remain largely sidelined. Meanwhile, other European pension systems and sovereign funds are becoming increasingly sophisticated venture investors.

The £3 trillion question isn’t whether UK pension funds should invest in venture capital; it’s whether they can afford not to. As one conference attendee put it, “There’s always something every year that makes next year look uncertain. We have to stop ourselves from always looking to next year and start working with what we have right now.”

The capital is there. The opportunities are there. What’s missing is the bridge between them—and the recognition that in an innovation-driven economy, that bridge isn’t optional anymore.