Local Investing: Unlocking Growth and Tackling Inequality in the UK

Sam Monger, Head of Place-Based Impact Investing at the Good Economy, outlines key findings of a new report ‘Scaling-Up Local Investing for Place-Based Impact: A Strategic Framework and Guidance for LGPS’, which highlights how underinvestment in key industrial sectors has held back the UK’s regions.

The author outlines that UK private capital firms have a powerful opportunity to help reverse this trend and that the Local Government Pension Scheme (LGPS) is uniquely placed to be a cornerstone of this effort.

For decades, underinvestment in key industrial sectors has held back the UK’s regions. Despite the strength of our global financial sector, post-industrial towns and cities have faced stagnant growth, leaving deep-rooted socio-economic inequalities in their wake. The imbalance between financial capital and real economy investment has widened regional disparities and weakened resilience.

Today, UK private capital firms have a powerful opportunity to help reverse this trend. The Government’s landmark Pensions Investment Review report last May highlighted two core objectives: improving pension outcomes and increasing local investment in the UK. With nearly £400 billion of assets and a projected £1 trillion by 2040 — the Local Government Pension Scheme (LGPS) is uniquely placed to be a cornerstone of this effort. As defined by the new policy, local investing encompasses private capital, including debt and equity investments in high-growth businesses.

Zoe Alexander, Director of Policy and Advocacy at Pensions UK, explains:

“The Local Government Pension Scheme is already an exemplar when it comes to investment in the UK. Building investment further and at a local level can help generate the additional capital needed for businesses to build vital infrastructure for communities and develop new technologies that benefit all of society.”

For General Partners, this represents more than a new source of funds; it’s a chance to align with committed, long-term Limited Partners actively seeking deployment opportunities in private equity, private credit, and infrastructure. The challenge for the LGPS is not a lack of capital, but a need for sophisticated, institutional-grade partners to build scalable platforms for local and regional investment.

This new mandate is designed to create a powerful framework for co-investment. By blending LGPS commitments with capital from public funders and Defined Contribution (DC) schemes under the Mansion House Accord, fund managers can amplify their firepower, de-risk investments, and gain access to proprietary deal flow outside of overheated national markets.

The LGPS has the scale and the mandate to make a difference. But the challenge lies in building the ecosystem and collaboration needed to translate capital into meaningful local impact.

In September, The Good Economy (TGE) launched its White Paper, Scaling Up Local Investing for Place-Based Impact. Published in response to the Government’s Fit for the Future consultation, it provides guidance for LGPS administering authorities and pools on how to develop investment strategies tailored to local priorities.

The way forward is not just about shifting pension assets. It’s about building localised financial systems where institutional capital, public funding and private providers collaborate. By combining LGPS commitments with support from public funders and Defined Contribution (DC) schemes under the Mansion House Accord, pools can unlock co-investment opportunities - amplifying local impact and achieve good returns.

We are already seeing promising examples, including Greater Manchester Pension Fund’s Local Investments portfolio which includes over £500m of SME investment¹ across 23 SME funds, resulting in support for 162 businesses, 44% of which are in the region, and over 16,000 jobs. Other LGPS funds active in regionally focussed SME funds include West Midlands, South Yorkshire, Avon, Clwyd and Devon.

This demonstrates how institutional rigour can be aligned with place-sensitive strategies to deliver transformational local outcomes.

Private market investment has matured significantly. Today, it offers LGPS funds an avenue to deliver strong long-term returns while also addressing systemic challenges -from affordable housing to clean energy, infrastructure, and SME growth. But the LGPS cannot act alone. To truly scale impact, wider investor confidence must be built, so that all private investors see the opportunity in aligning capital with both financial returns and societal outcomes.

To read more, the white paper is available here.