The UK’s confused relationship with private investors

• The UK Government and its financial regulators are becoming more pro-private market in the search for growth and investment.
• But they are still nervous about potential risks, sometimes leading to erratic treatment. Government is also trying to reinvigorate public and private markets at the same time, when they can be in tension.
• There is an opportunity for Labour politicians who want to boost growth to lean into private markets more. Investors should help bolster their reserve.

The UK has a confused approach to private markets. Venture and private equity investors provide 81% of equity capital in 2024 and 73% between 2020 and 2024.[1] In the City and across Whitehall, this is both lauded and feared. Private markets are variously portrayed as the UK’s high growth saviour and a high risk, opaque curse.

Senior Labour politicians have shifted to support for private markets. To fully capitalise on their growth potential, further reforms are needed from government and regulators. Some of the processes to do this are in place, but require action and support from firms to ensure change is delivered.

Pro investor, but inconsistent

The Labour Government’s view that private markets deliver high growth, real-world opportunities has evolved since Rachel Reeves said they “strip the assets of British businesses” in 2022.

The positive stance is now proudly stated publicly and to private investors at summits, roundtables, breakfasts and lunches. The view is informed by admiration of Canadian and Australian pensions funds that have scaled and increased their allocations to private markets under similar centre-left governments.

However, positive rhetoric can falter on specific deals or issues. Political concerns return about high leverage levels weakening the resilience of voter-facing firms, about foreign buyers, about high margins, management fees, and reduced accountability compared to public firms. There is the constant and growing worry about delistings from the London Stock Exchange. Finally and most famously, there is concern the carried interest and non dom regimes were too generous.

Governments are often inconsistent, but this approach is damaging, so it should be resisted. The civil service and regulators take cues from rhetoric and act accordingly. Investors take note and may consider investing outside of the UK.

Incremental policy change

There have been positive policy developments in support of private markets.

For context on how regulatory reform can actually strengthen the case for private investment, see: Audit reform - why increased regulation strengthens the case for private investment 

• The last Government relaxed rules on pension fund charges to allow greater private market investment.
• There are efforts to encourage UK pension funds to allocate more capital to alternative investments like infrastructure, private credit, and private equity funds (and more to the UK in general).
• SolvencyUK will modestly increase infrastructure investment.
• The review of the Alternative Investment Fund Managers Directive (AIFMD) can reshape UK asset management to support innovation and competitiveness (though the largest firms may face similar requirements).
• Discussions are ongoing about making Long Term Asset Funds (LTAFs) ISA-eligible, which could significantly increase retail investor access to long-term, illiquid assets.
• The Private Intermittent Securities and Capital Exchange (PISCES) will give greater options for private companies to access funding and grow, but the success will hinge on investors’ willingness to acquire private market skills, e.g. to understand valuations and conduct due diligence.
• Institutions like the National Wealth Fund, GB Energy and the British Business Bank (BBB) will co-invest with private investors.

There is more work to be done. Whilst pension consolidation aims to encourage private investment, most schemes will still be subject to recommendations of investment consultants not geared for private markets. Only the very largest schemes will have the skills, experience and risk appetite to allocate large amounts.

The government’s position on carried interest and non-domiciled taxpayers was less negative than some feared, but the effects are still damaging. There is room for further adjustments in the ongoing discussions. We expect announcements on carried interest soon.

Some UK rules cannot be altered too far for fear of losing EU equivalence. But the EU is also on a deregulatory trajectory, so, managed correctly, markets could change rules in tandem.

Evidence-based regulation

Regulators and policymakers have been concerned about risks posed by private markets, also known as Non-Bank Financial Institutions (NBFI). Bank of England Governor, Andrew Bailey, said earlier this year that the significance and scale of NBFI activity and related financial stability risks have not been appreciated, and called for greater data on the sector. The FCA has been concerned about NBFI leverage and valuation risks. However, there should not be a uniform approach to regulating NBFIs, given the diversity the poorly defined term encapsulates.

For a deeper look at how policymakers are approaching NBFIs and what it means for firms read: Regulating NBFI: are authorities going too far? 

Instead of jumping to rule-making, regulators should take a careful, evidence-based approach. Following the Covid-19 shock in March 2020, many organisations, such as the Financial Stability Board (FSB) consider open-ended funds (OEFs) and money market funds (MMFs) a key source of financial instability. However, post-FSB reforms, the Bank of England’s latest stress test for non-banks (system-wide exploratory scenario, SWES), clearly showed these funds demonstrated resilience.

There has been a turning point in regulator sentiment. The FCA’s recent Asset Management Portfolio letter said it will support expansion of retail investors into private markets, a clear change in the regulator’s risk appetite. There is a case for this: retail investors shouldn’t miss out on growth because they are not wealthy institutions.

Related insight on the FCA’s evolving priorities: The FCA  delivering on its growth and competitiveness objective 

Expansion into retail will lead to more regulatory and political pressure. Private firms will have to manage the consumer duty. Some individuals will lose money. Others will fail to understand that withdrawals can be restricted. There will be increased scrutiny if private markets become a core part of the DC default. Firms have an important role to play in mitigating regulatory concerns and helping them to navigate the challenges posed by increasing retail participation in private markets.  

Flint helps navigate these changes

Labour has the opportunity to drive growth through investment, but needs to seize it. There are forces of small-c conservatism in public markets, banks, its backbenches, and parts of the regulators pushing against private markets. Firms and investors need to arm UK policymakers and regulators with the arguments for change.

This blog was written by Director Joe Jones, Partner Becky Young and Associate Director Bhavini Parmar. Joe leads Flint’s work with private market clients, helping them understand and address political and regulatory risks and opportunities. He has advised on over 80 transactions across a range of sectors. Becky advises clients on competition and regulatory matters across a range of sectors including financial services, digital markets and telecoms. Bhavini advises clients on competition, policy and regulatory issues with a focus on financial services and digital markets.

[1] UK Finance, UK Public and Private Capital Markets, March 2025