Investors: what to watch out for in '26 - Alternative Insights 2026

Sarah Stewart

Senior Counsel

David James

Head of Pensions

Tosin Adeyeri

Partner

Pension funds and private capital

There’s global focus on encouraging pension fund money into private capital. In the US, President Donald Trump signed an executive order intended to “democratize” access to alternative assets for 401(K) investors, including private market investments, infrastructure and digital assets. The UK Chancellor Rachel Reeves has called on pension schemes to “learn lessons” from Canada’s largest retirement funds, (the Maple 8), and Australian superannuation funds, but what has happened so far?

Kicking-off this trend was the industry-led Mansion House Accord – seventeen defined contribution (DC) pension schemes committing at least 10% of their main (default) funds to private assets (at least 5% earmarked for the UK).
2025 saw the launch of Sterling 20, an investor-led partnership between some of the UK’s largest pension schemes and insurers to channel funds to key infrastructure in particular. One deal held up as an example of this kind of collaboration was Legal & General’s venture with Nest, together committing billions to affordable housing and rural broadband (Travers Smith acted for Nest).
The Government backed British Business Bank (BBB) is the anchor investor into its British Growth Fund with fundraising focusing on pension funds. The BBB is determined to use its investing power to encourage pension schemes into venture capital and so is also launching Venture Link. Under that initiative, it will publish more of the information it obtains about the VC funds it supports or is considering, in order to get others comfortable with investing.
The BBB has supported the BVCA in developing the New Opportunities for Venture and growth Acceleration proposal (NOVA), to enhance the scale and pace of DC pensions investment into UK venture and growth capital funds, modelled on the French Tibi scheme. Key features include a fund accreditation process and dedicated systems to connect pensions investors to VC and growth funds.

Driving pension fund consolidation

But the biggest trend in this space, given shape by the upcoming UK Pensions Schemes Bill, is consolidation. The new rules in the Bill will give the UK government a “backstop” power allowing it to require these mega-funds to invest in private capital – private equity, debt, venture capital and real estate in the hope that the existence of this back-stop authority encourages voluntary investment across these strategies.

The UK Government will have a “backstop” power to require pension funds to invest in private capital

Current estimates are that there will be 10-15 mega-funds by 2030 and 15-20 by 2035 and the thinking is that they should drive economies of scale, access to greater expertise and diversification, with a statutory framework requiring them to demonstrate value for money. In the immediate term, whilst several pension providers have already met (or are on track) to achieve scale, others will be kept busy considering mergers and transfers to meet the £25bn threshold.

At the same time, local authority pension funds (currently 86 authorities and 8 pension pools) will be consolidated to just six pools, with each pool set-up as an FCA authorised management company. As with the mega-funds, consolidation is seen as key to local authority pension pots having access to private markets and to be able to negotiate lower management and performance fees.

UK securities tax regime

We should find out more in 2026 about the planned complete overhaul of the UK’s aged securities transfer tax regime. The existing two taxes (stamp duty and stamp duty reserve tax) are set to be replaced, in 2027, by a single new self-assessed tax on securities. The proposed rate of the principal charge will remain at 0.5%, but, in good news for the private capital sector, partnership interests will no longer be within scope. This will be subject to an anti-avoidance provision, the width of which will be something to watch out for when draft legislation is published.

Partnership interests are currently within the scope of stamp duty, albeit in practice it is very rarely necessary to pay it. However, it is common for parties to secondary partnership transactions with a UK nexus to take extra steps to mitigate the stamp duty risk (such as offshore execution of transfer documents). This should not be necessary under the new regime.

Proposed new US tax rules for SWFs

Certain non-US government investors, such as sovereign wealth funds and some public pension schemes, are exempt from US tax, other than in relation to their commercial activity. These are known as 892 investors after the section of the US tax code that confers the exemption. In December, the IRS published proposed regulations which, if enacted in their current form, would increase the circumstances in which 892 investors involved with loan origination would be treated as carrying on commercial activity, for example, if they participate on a creditor committee that negotiates the restructuring of a defaulted loan.

At this stage, the proposed regulations are not finalised. However, 892 Investors should start contingency planning for what happens if they are adopted as written. This is likely to involve, for existing holdings, assessing potential exposure (and mitigation steps), and, for upcoming investments, considering structuring options.