UK Pension Funds Reject LSEG Proposal for Domestic Stock Investment Mandates

This analysis is based on the Reuters report [1] published on November 13, 2025, which reported that the UK pension industry has formally rejected proposals from the London Stock Exchange Group (LSEG) and over 100 British business executives to mandate increased investment in UK stocks. The rejection highlights fundamental tensions between national economic objectives and pension funds’ fiduciary responsibilities, with the industry emphasizing that investment decisions must prioritize saver interests over political pressure [1].

The pension industry’s resistance is rooted in significant performance gaps between UK and international markets. The US S&P 500 has soared nearly 500% since 2010, while Britain’s FTSE 100 has gained only 80% over the same period [1]. This performance disparity has created a powerful incentive for pension funds to seek returns in more dynamic international markets. Current market conditions reveal substantial valuation differences - FTSE 100 companies trade at P/E ratios ranging from 9.1 to 17, compared to 25.6 to 33.3 for top S&P 500 constituents [2].

The proposal’s context includes dramatic declines in domestic equity exposure, with UK pension funds holding only 4.1% of their equity investments in UK-listed companies in 2025, compared to 53% in 1997 [1]. This shift reflects broader structural changes in the UK market’s global relevance - the UK’s weight in the FTSE All-World index has declined from 8.11% in December 2008 to just 3.38% in July 2025 [4]. The UK pension fund market has consolidated significantly, with total assets under management reaching £10.0 trillion in 2024-25, the highest level on record [4].

The rejection occurs against a backdrop of previous policy initiatives. The UK government’s Mansion House Compact aims for 10% of defined contribution assets in private markets by 2030, with 5% specifically targeting UK companies [3]. The Pensions Bill 2025 includes reserve powers for mandatory allocation requirements, though the government has so far favored voluntary approaches [2]. This regulatory uncertainty creates challenges for long-term strategic planning while maintaining flexibility for market-driven solutions.

The core conflict centers on pension funds’ fiduciary responsibilities to maximize returns for savers versus broader economic objectives. As Zoe Alexander of Pensions UK emphasized: “Somehow, the interests of the saver are being lost in this debate” [1]. The industry’s unified resistance suggests that mandatory allocation requirements would face significant implementation challenges and potential legal challenges regarding fiduciary duty breaches.

The industry is showing strong momentum toward private markets investment as an alternative to domestic public equities. Local Government Pension Schemes (LGPS) average 6% in private equity, with broader private markets reaching 10-12% [3]. The target for defined contribution schemes is 10% private markets allocation by 2030, up from current levels of 0.5-2%, representing a potential £50-75 billion in new commitments over five years [3].

LSEG has been investing in technology platforms for private markets, including a new platform built on Microsoft Azure that is “asset class agnostic” with private markets as the first use case [2]. This infrastructure development suggests the industry is preparing for continued expansion beyond traditional public markets, potentially reducing the relative importance of domestic public equity allocations.

: The historical underperformance of UK equities relative to global markets remains the primary barrier to increased domestic allocation. Until UK markets can demonstrate competitive risk-adjusted returns, pension funds will continue to face pressure to seek returns internationally [0].

: The possibility of future mandatory allocation requirements creates regulatory uncertainty that must be factored into long-term strategic planning. However, the industry’s unified resistance suggests any such measures would face significant implementation challenges [2].

: The UK’s declining global relevance in equity markets (from 8.11% to 3.38% of FTSE All-World index) makes it increasingly difficult for UK equities to attract institutional investment on merit alone [4].

: The relative undervaluation of UK equities compared to global peers may present opportunities for value-focused international investors, particularly given P/E ratios substantially below US counterparts [2].

: The shift toward private markets represents a significant opportunity for UK companies to access pension fund capital outside traditional public markets, with potential for £50-75 billion in new commitments by 2030 [3].

: The resistance to mandatory allocations creates space for more nuanced policy approaches, including incentives, tax advantages, or regulatory reforms that improve the competitiveness of UK markets [1].

The pension industry’s rejection of the LSEG proposal reflects a fundamental market reality: UK equities have significantly underperformed global peers for over a decade, making it difficult for pension funds to justify domestic allocations on fiduciary grounds [1][2]. The proposal’s estimated potential to generate £76-95 billion of additional UK equity investment by 2030 [1] represents a significant opportunity cost for UK capital formation if alternative solutions aren’t developed.

Major pension providers are already adapting to this reality through global diversification strategies. Scottish Widows, for example, announced in June 2025 that it was reducing its UK equity allocation in favor of a “more globally diversified approach” to capture “more growth opportunities in high-performing international markets” [4].

The industry is pivoting toward private markets and alternative investments, with current allocations showing LGPS averaging 6% in private equity and broader private markets reaching 10-12% [3]. This shift represents both a challenge for UK public markets and an opportunity for companies to access capital through alternative channels.

For stakeholders, the key takeaway is that any successful solution to increase domestic investment must address the fundamental performance gap and improve the competitiveness of UK markets, rather than relying on mandatory allocation requirements that conflict with fiduciary responsibilities [1][2].