‘A huge win’: Top venture capital firms back plans to pump pension cash into the economy
Top venture capital firms have thrown their weight behind a move to channel pension cash into start-ups today as the government accelerates its efforts to get more retirement money flowing into the economy.
In an announcement this morning, 20 venture firms including Octopus, Balderton and Lakestar said they had signed a new “Venture Capital Investment Compact” backed by the Treasury, which would help unlock £50bn to flow into unlisted companies by the end of the decade.
The new announcement follows a move by nine of the country’s top pension money managers over the summer to commit five per cent of their assets over the summer to start-ups by 2030.
Pension money has typically been shut out of private markets due to the higher costs charged by money managers at VC and private equity firms. However, backing for the plans from some of London’s top venture capital investors may now unlock a viable channel for pension money to flow into startups.
The announcement was cheered by Chancellor Jeremy Hunt today, who said the announcement would be a boost for UK start-up investment and saving pots.
“This compact is a huge win – demonstrating that our world-renowned Venture Capital firms stand ready to help our pension providers allocate funding to our high growth companies,” he said. “This could boost British pension pots to the tune of £1,000.”
When the Mansion House Compact was signed by pension firms in the summer, ministers claimed the shift into the private markets would unlock an additional £75bn for high growth businesses and increase a typical earner’s pension pot by 12 per cent over the course of a career.
The move comes amid fears that top British startups are being forced to look across the Atlantic to raise so-called growth capital amid a dearth of funding in the UK. Firms like the Canadian Ontario Teachers Pension Plan have been prolific in swooping into the UK and pumping cash into start-ups.
The chief of the British Venture Capital Association, Michael Moore, said today that the move by VC firms to back the Mansion House Compact would allow British savers to tap into similar returns.
“Many overseas investors have jumped at the chance to invest in – and benefit from – the performance of innovative UK firms,” he said in a statement.
“UK savers must have access to the same opportunity. We want to seize this opportunity for British pension savers to benefit from returns garnered from VC innovation in the UK while helping businesses to grow, succeed and create jobs.”
City grandees and tech figures have long been lobbying for pension money to be channelled into more productive areas of the economy amid a trend of “deequitisation” in the UK.
Pension funds holdings of publicly listed equities has cratered to just four per cent of the stock market, down from 39 per cent in 2000, while holdings of private companies is even more minuscule.
The efforts have backing from both sides of the political aisle, with Labour backing a similar plan to force pension managers to pool assets in a £50bn fund that would invest in startups.
Some figures in the pension industry have pushed back on the plans, however. Critics argue that it will shift higher costs onto savers and have pushed to keep costs down.