UK pension fund launches £1bn scale-up investment drive

The £1 billion fund, backed by the British Business Bank and pension schemes, will focus on UK scale-up businesses to address a persistent shortage of long-term capital for high-growth companies. Railpen, which oversees £36 billion for over 350,000 members, has long pushed for dedicated scale-up funding. The new fund, expected to exceed £1 billion, supports the British Business Bank’s goal of backing innovation-driven growth. Early planning centers on balancing pension fund obligations with government priorities to deliver value for both taxpayers and members.

Barriers to Capital for UK Scale-Ups

The UK’s universities and research institutions generate new ideas and talent, but many high-growth firms struggle to expand due to limited access to patient capital. Traditional investors often demand quick liquidity, while scale-ups need sustained funding over years or even decades to reach their full potential.

For Railpen, investing in scale-ups combines higher returns, portfolio diversification, and alignment with long-term liabilities. Since 2006, UK private capital has outperformed the FTSE All Share by roughly 55% annually, according to industry data. The illiquidity of private markets—where capital may remain invested until an exit like an acquisition or IPO—can benefit pension funds with long-term horizons.

A key challenge is distinguishing between promising startups and those with genuine scale-up potential. Not all high-growth companies succeed, so pension funds must exercise strict discipline. The fund’s structure will prioritize businesses with sustainable growth, not just temporary revenue spikes.

Fund Mechanics and Stakeholders

The new fund marks a broader shift in how institutional investors view private markets. While public markets reward short-term performance, private equity and growth equity often deliver stronger risk-adjusted returns over time. For Railpen, the illiquidity premium, compensation for locking capital into illiquid assets, becomes a strategic advantage.

Its success depends on collaboration across the innovation ecosystem. Universities supply research and talent, venture capitalists fund early-stage growth, and pension funds provide later-stage capital with governance support. Many founders lack experience managing institutional investors, so Railpen and similar funds can offer operational guidance to help businesses mature.

A well-structured ecosystem ensures all participants’ goals are met. Pension funds fulfill fiduciary duties while accessing high-growth opportunities. Governments support innovation without direct financial risk. Universities continue producing cutting-edge research. Businesses gain the capital and expertise needed to compete globally.

Policy Test for UK Innovation

Long-term support combined with strategic oversight improves a company’s survival and growth odds. The fund’s design must avoid past mistakes, such as overinvesting in unproven businesses or neglecting governance.

Railpen has repeatedly called for the creation of a dedicated Scale-up Fund, including through prior commentary on the issue. The organization argues that such a fund would address gaps in long-term capital availability for businesses poised for significant growth. Its advocacy reflects an understanding of how patient investment can sustain innovation over extended periods.