Private Equity

Baroness Stedman-Scott Excerpts

Thursday 20th November 2025 Grand Committee

[Baroness Stedman-Scott (Con)]

My Lords, I will speak on the role of private equity within the modern pensions landscape and, in particular, the implications of the Government’s Mansion House reforms for the Local Government Pension Scheme and long-term investment in the United Kingdom. The reforms announced in 2024 mark an important moment. They aim to consolidate our fragmented defined contribution sector and strengthen the investment management of the Local Government Pension Scheme. Taken together, they represent an attempt to align pension outcomes with the broader goal of promoting productive investment across the country.

The challenges of the next half-century are considerable: climate transition, energy security, technological change, demographic pressures and geopolitical instability will all shape the environment in which pension assets must be managed. In that context, private capital, including private equity, has a role to play not only in delivering returns but in addressing some of the systemic issues that confront the country.

It is important to acknowledge that private equity is not a uniform asset class. When approached with discipline and proper governance, it can generate significant value. Over the past two decades, it has produced sustained double-digit returns, considerably outperforming public equity indices. For many defined contribution schemes, which seek long-term growth and diversification, such returns are both attractive and aligned with members’ interests.

Private equity also provides access to parts of the economy that public markets do not easily reach: smaller companies, specialised sectors and innovative enterprises. It enables long-term investment in businesses without the short-term pressures that arise in listed markets, and it brings with it an attractive investment approach, drawing on skills that help transform businesses and support growth. Other jurisdictions demonstrate what can be achieved at scale. Canada’s major pension funds, for example, have used their size to deepen allocations to private equity infrastructure and real estate, generating stronger returns and reducing costs. The United Kingdom should be ambitious in seeking similar outcomes.

This brings me on to the Local Government Pension Scheme. With nearly £400 billion in assets—that figure is projected to reach £1 trillion by 2040—the LGPS is uniquely positioned to contribute in order to improve member outcomes and to increase productive investment across our regions. Encouragingly, we are already seeing progress. The Greater Manchester Pension Fund has committed more than £500 million to SME investment, supporting more than 160 business and creating more than 16,000 jobs. Funds in the West Midlands, South Yorkshire, Avon, Clwyd and Devon are showing similar leadership.

Noble Lords are, I am sure, quite surprised that I should be speaking in this debate on private equity, but I absolutely pay tribute to the Private Equity Foundation. When it makes money, which is a good thing, it actually puts that money into a good cause. The charity that I ran a few years ago was a beneficiary: it invested in the work that we did with children in schools. We reduced truancy, increased academic achievement and got young people into work who would never have done so otherwise. It deserves credit for that.

There are jobs for young people in the areas that need them most. There are opportunities and hope. As of 31 December 2024, £203 million had been invested directly into the West Midlands Combined Authority area. This includes funding for housing, infrastructure, commercial property and small businesses, creating jobs, building homes and improving services. More than 22,000 jobs have been supported, with nearly 5,000 homes delivered and significant investment directed into hospitals, schools and digital infrastructure. Such examples show that institutional rigour can sit comfortably alongside place-sensitive investment strategies. They demonstrate that pension funds can achieve strong financial returns while also contributing to local economic development.

However, context matters. Many LGPS funds are currently well funded. The scheme as a whole was estimated to be 107% funded in March 2022, and early indications suggest a further strengthening by 2025. For some funds, that may reduce their immediate appetite for additional private market exposure. The Government’s proposed allocation target of 10% for private equity may, therefore, appear ambitious. Yet, if the consolidation envisaged by the Mansion House reforms proceeds, the LGPS will inevitably become a larger and more sophisticated investor in private markets.

As this occurs, the secondary market, which is all too often overlooked, will play an increasingly important role. It will provide liquidity, support portfolio rebalancing, and enable the effective recycling of capital. The UK must ensure that this market is deep, transparent and trusted. If we are to meet the challenges of the coming decades and seize the opportunities that accompany them, we must treat our pension system as a cornerstone of national economic strength.