UK finance minister Rachel Reeves addressed private market investors in London on Wednesday regarding plans to help unlock the country’s £6 trillion ($8.1 trillion) pool of long-term capital, as the industry discussed ongoing structural issues facing the asset class in Britain and Europe.
Industry participants gathered at the British Private Equity and Venture Capital Association’s annual summit in London amid a complex backdrop of cautious economic recovery, persistent liquidity challenges, and mounting pressure to unlock domestic pension capital.
Key themes emerged around the sector’s urgent need for pension reform to channel domestic capital into private markets, and the industry’s adaptation to a new geopolitical reality where supply chain risks and energy security have become core investment considerations.
During a fireside chat with BVCA chief executive Michael Moore, Reeves sought to reassure delegates that “growth is the number one mission of this government.” She noted that the UK was the fastest-growing G7 economy in the first half of the year, buoyed by five interest rate cuts since the Labour party took power in July 2024 and new trade deals with the US, India, and the EU.
But resilience comes with caveats. HSBC‘s global chief economist Janet Henry delivered a frank assessment, warning that beneath the headline numbers, private sector dynamism remains weak.
“One percent growth or a little bit more is not enough,” she said, noting that consumers were still not spending all their incomes, savings rates were high, and business investment had actually fallen. GDP per head has remained essentially flat since 2019.
Inflation remains persistent. Having hit 3.8% in July, it is expected to peak at 4% this month. UK prices have increased by 28% since 2020, putting the country at the top of developed economies for cumulative price increases.
The government estimates the black hole in the UK public finances to be between £20 billion and £40 billion, which is expected to force it to raise more tax in the upcoming November budget.
During her talk, Reeves described how private markets are central to supporting UK growth: “Some of the fastest-growing businesses are PE-backed, VC-backed businesses, and I want to do what I can as chancellor to help them.”
Regarding the government’s pension reform plans, Reeves reiterated the importance of upcoming legislation to create mega funds that consolidate the local government pension scheme from 86 authorities into eight pools. The Mansion House Accord signing is positioned as a key step toward channeling more domestic capital into private markets.
The pension allocation challenge dominated multiple sessions, with current direct contribution pension fund allocation to private markets sitting at just 0.36%.
“We’ve got £6 trillion of long-term capital hopelessly misallocated,” said Sir Nigel Wilson, chairman of the Canary Wharf Group, during a panel. “That’s caused us to have very poor economic growth. We have to reverse that.”
He added: “We’re poised for success. We’ve got all the capital here in the UK ... we need business to step up and be more ambitious.”
The industry sees pension reform as essential for the UK’s economic future, though speakers acknowledged this requires cultural change among both pension funds and employers.
Exit drought and liquidity crisis
Liquidity constraints also dominated conversations throughout the summit.
“The biggest challenge right now is the lack of exits,” said Nassim Cherchali, managing partner at AnaCap, pointing to sluggish realizations and tougher fundraising conditions.
Richard Hope, co-head of investment and head of Europe at Hamilton Lane, provided context on LP cash flow dynamics, noting that distributions to LPs had fallen to 10–15% of commitments—"sobering numbers” that are keeping investors cautious.
“Exit activity is going to be critical if you’re going to be successful with fundraising,” Hope told delegates.
While LPs became cash flow positive for the first time in three years in Q2 2025, this was primarily driven by credit markets rather than PE exits, where long-term average distributions of 22% are now running at just 10-15%.
Continuation vehicles and secondaries are increasingly part of the toolkit. Cyril Auger, senior managing director at Ardian, stressed that discounts, once rare, are now creeping into continuation deals. Hope added that he’s seeing a shift to holding companies longer—six years or more—while LPs press for liquidity. The secondary market is experiencing unprecedented demand, with 2025 volumes expected to reach $250 billion versus $160 billion in 2024.
Evergreen funds
The evolution of evergreen funds continues to be a topic of keen interest. In a discussion about risks of the products, Anita Rana, a principal with Hamilton Lane’s portfolio management group, said foreign exchange risks will become more prominent in evergreen structures.
“FX risk can really shoot up and down with evergreen funds, and that will come up more. However, hedging can impact your liquidity profile as well,” she said.
Evergreens, once more targeted at individual investors, are now also gaining traction with institutional investors. It is increasingly used as a portfolio management tool to complement their allocation to traditional drawdown funds.
The increasingly diversified group of investors in the evergreen products is expected to benefit managers, as liquidity demands can be spread out.
Geopolitical reality check
The mood regarding geopolitical risks was more sober than in previous years. Philip Edmans from Inflexion captured the sentiment: “If you told me five years ago that I need to worry about gas supply in Germany and its impact on German meat ... I would have said it’s crazy.”
Gas supply shocks, tariffs, and supply chain fragility now shape underwriting as much as EBITDA growth. The second and third-order consequences of geopolitical events are now standard risk considerations, forcing firms to maintain “high risk flag filters” on everything from customer concentration to supply dependencies.
Edmans said that deal activity plummeted during the “Liberation Day” period in spring when Donald Trump’s tariff discussions created uncertainty, though he highlighted some positivity of renewed activity two months later in July and August.
Despite the challenges, there was a measure of optimism. Matthew Sabben-Clare, BVCA chair and senior advisor at Cinven, noted that the association’s recent pulse survey showed increased appetite for UK investment compared to 2024. Mid-market agility was highlighted as a competitive advantage in navigating uncertainty.
The November budget looms as a key inflection point, with the private capital industry hoping the UK government’s pension reform agenda gains momentum while preparing for potential tax changes that could affect their fundraising and operational model.
The fundraising environment remains challenging with year-on-year declines, though hope remains that renewed exit activity could restart the fundraising cycle as distributions improve LP cash flows.
Rachel Reeves, UK finance minister, with BVCA chief executive Michael Moore at BVCA Summit 2025
Featured image courtesy of BVCA
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