According to the Financial Times, Lloyds TSB Development Capital (LDC) - which invests an annual figure of approximately Â£250 million into between 15 and 20 companies - will look to start raising money from third parties by 2013.
"Assuming the regulatory regime stays the same, it is likely in five years we will be independent," said chief executive Darryl Eales.
Lloyds has formally denied that it has any intention of selling LDC, but the partly state-owned bank is understood to be aware of increasing pressure from regulatory bodies seeking to rein in private equity firms and hedge funds.
Last week, EU lawmakers voted in favour of a package of new rules affecting the trading bloc's hedge funds - the majority of which are headquartered in London.
By Claire Archer