The UK pension fund makes a big "escape" from the public market, with non-listed equity allocations soaring to 45%.

The UK defined benefit pension scheme is currently pouring into the private market at an unprecedented scale, with nearly half of its equity allocation now consisting of unlisted equities. This poses a serious challenge to the efforts to revive the London financial market. According to the latest report from the Pension Protection Fund (PPF), the weighted average proportion of unlisted equities in its equity investment portfolio reached about 45% last year, a significant leap from less than 18% in 2020. This structural shift is impacting the efforts of the London Stock Exchange Group and the UK government to boost the domestic stock market investors had already shifted massively towards US assets in pursuit of the "Fabulous Seven" tech stocks feast. The rise of the private market presents an increasingly serious challenge, with London Stock Exchange CEO Julia Hoggett stating last year that the private market may pose a greater threat to the exchange compared to other exchanges. Private markets typically have lower transparency and liquidity than publicly listed stocks, which can pose greater risks if market conditions change. UK regulators are reviewing how institutions, including pension funds, will respond to market downturns and how this could pressure UK financial stability. In addition to being undervalued compared to their US counterparts, UK stock fund managers have struggled to find a compelling narrative to encourage investment in the domestic stock market. The PPF's report last month found that fixed income funds reduced their allocation to UK stocks to below 5% for the first time. The PPF covers fixed income funds with assets totaling over 1 trillion (around $1.4 trillion). The fund compensates employees when a company goes bankrupt and its pension plan is in deficit. "Fixed income pension funds have a huge responsibility. They need to meet actual payment commitments," said Neil Birrell, Chief Investment Officer at asset management company Premier Miton Investors. "If they believe they can fulfill their obligations more easily and better elsewhere, they will do so." Selling UK stocks is part of a broader trend. According to Calastone data, UK investors have been reducing their exposure to funds focused on the UK for ten consecutive years, with the data based on the fund's domicile rather than its investment strategy. Birrell said that slowing economic growth and the "difficult" fiscal and political background are making the UK less attractive to investors. "The UK doesn't have many tailwinds right now, but it has a lot of headwinds." To change the narrative about the UK, Chancellor Rishi Sunak will provide a three-year stamp duty exemption for companies newly listed on the London Stock Exchange. The move comes as the UK market fell out of the top 20 global IPO markets in the third quarter. There have been some turning points in recent months. After a series of new listings at the end of last year, the London Stock Exchange's total trading volume for 2025 has increased, and the benchmark FTSE 100 index has rebounded to record highs. Sunak has also reduced the amount of cash that can be held in tax-free savings accounts to help attract more funds into the publicly traded stock market. However, the Labour politician is also pushing for investment in the private market, with many of the largest pension providers in the country committing to allocate 5% of their workplace investment portfolios to UK private assets by 2030. The PPF found that larger pension funds often have lower proportions of UK stocks and higher exposures to private equities. Sunak had previously stated in May last year that private investment could help develop the stock market by preventing businesses from seeking funding overseas, which could influence where companies ultimately choose to list. Defined benefit retirement plans provide participants with guaranteed lifelong pension income, with investment risks borne by the employer. These plans are mostly no longer open to new members in the UK, meaning that young workers must rely on their own savings for retirement.