Partner Insight: Mind the underinvestment gap - Shaping the UK's future through private markets investment

Decades of underinvestment has placed untenable pressure on the UK's social infrastructure – housing, healthcare, transport and essential services – creating systemic vulnerabilities that constrain productivity and social mobility. The scale of investment required is vast; as is the opportunity for large scale investments by institutions (otherwise referred to as institutional capital) to create positive change and tap into what we see as an abundant landscape for holistic, private markets investing.

Here we will explore:

• The UK's investment need and the substantial opportunity set for institutional capital.
• Target areas that could generate positive social, economic and environmental outcomes.
• How a diversified private markets approach could deliver attractive relative value.
• The potential for improved investment outcomes through access to hybrid transactions that can fall through the asset class gaps.

Structural challenges run deep

For generations, a disparity in wealth – and consequently living standards – has shaped the UK economy. An era of deindustrialisation combined with the deregulation of financial markets in the 1980s marked a defining chapter in the country's economic course, resulting in the UK's staggering regional income divide today, relative to its G7 peers. The UK has one of the widest regional economic gaps of any large, advanced economy, with stark differences in both disposable income and productivity between regions^[1].

The UK's transition to a services economy and the network effect of London's continual draw of workers from regional towns has concentrated high growth companies in the South East, in cities including London, Oxford and Cambridge. This has accelerated economic expansion in London, where real GDP (adjusted for inflation) grew by 2.4% per year between 1998 and 2023, versus 1.7% for the rest of the UK^[2].

Uneven investment levels have also resulted in mixed outcomes across the country, with the government responding to continued population growth, changing consumer needs and the need for a wholesale transformation of the country's transportation networks^[3]. Between 2023/24, transport spend per head was nearly double in London compared to England as a whole^[4].

"Uneven investment levels have also resulted in mixed outcomes across the country…"

The UK National Infrastructure Commission has stressed the importance of prioritising transport network investment in Birmingham, Bristol, Leeds and Manchester, in the face of growing passenger numbers. Without an increase in capacity, employment growth in these cities is likely to be constrained over the next 20-30 years, according to its Second National Infrastructure Assessment^[5].

However, challenges remain even in cities that have attracted higher infrastructure spend. In London, like other cities, there are stark inequalities across and within boroughs – food bank usage has soared and the cost of living is high. Unemployment rates were also higher in London than in any other region in the third quarter of 2025, at 6.5% versus 5% for the UK overall^[6].

What's more, the city is at the centre of the country's housing affordability crisis. House price to earnings ratios remain elevated across London compared to the rest of the England and average London rents have significantly outpaced earnings growth in recent years.

The impact of housing pressures on lower income households has been particularly acute in the capital, with 18.9 households per 1,000 in temporary accommodation compared to 2.6 in the rest of England as of the second quarter of 2024^[7]. Pressure on housing supply and other essential infrastructure and services continues to mount with a rising urban population, echoed in key cities across the country.

The UK's growing investment need

The UK's structural challenges have been exacerbated by a lack of investment overall. Relative to GDP, the country's total investment – public and private – has remained below that of its G7 peers.

Increased levels of investment in UK real assets, including housing, healthcare, infrastructure and other essential services – supported by strong cross-party political backing – therefore has the potential to accelerate productivity and growth across the UK.

Key target areas for investment include housing, with the UK's 6.5 million home shortfall far exceeding that of the average European country^[8]. New housing starts have consistently lagged government targets, and a large-scale, long-term solution is now required.

"Key target areas for investment include housing, with the UK's 6.5 million home shortfall far exceeding that of the average European country."

Another priority area for investment is healthcare, given a growing and ageing population, combined with the long-term deterioration of the NHS estate. Backlog maintenance costs have now risen to £15.9 billion, according to NHS data for 2024/25^[9] – more than the total annual cost of running the entire NHS estate. Clinical services are therefore at high risk of major disruption or failure, meaning the requirement for fit-for-purpose healthcare facilities is paramount. Other public sector buildings, including schools and prisons, are similarly in need of significant investment.

"Another priority area for investment is healthcare, given a growing and ageing population, combined with the long-term deterioration of the NHS estate."

Across the country, the need for regeneration continues to intensify. Meeting the UK's 2050 net zero goal will require £50-60 billion a year of investment through the late 2020s and 2030s^[10]. The Office for Budget Responsibility estimates that over 70% of the UK's clean energy investment must come from the private sector^[11].

Institutional capital alone cannot resolve the problem, but it has an integral role to play in realising projects that raise living standards, reduce health inequalities, improve public services and contribute to decarbonisation.

Putting capital to work where it's needed

Key to driving economic growth across the country is the provision of funding for high-growth companies – often university research spin-outs – such that they can establish roots in regional locations.

If institutional capital is put to work effectively, the benefit for people and places can be profound. Thriving high streets with an abundance of local and regional businesses are the lifeblood of regional towns and partnering with local authorities to create an environment in which these retailers can flourish is a tried and tested model for enabling councils to fulfil their ambitions to support local people and businesses. Likewise, funding the development of healthcare facilities can help to support better health outcomes for local people, particularly in underserved areas.

Institutional capital can also be deployed to support the need for more housing where it is needed most across the UK. Amplified by widening commuter belts, the social and economic potential this can harness can be consequential.

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Marketing Communication for Professional Investors only.  The value of investments will fluctuate, which will cause prices to fall as well as rise and investors may not get back the original amount they invested. The views expressed in this document should not be taken as a recommendation, advice or forecast.