Small ‘c’ conservatism won’t work for the City anymore
At Mansion House earlier this week, Jeremy Hunt signalled the era of small ‘c’ conservatism is over and the government will get out of the back seat in the City, is over, writes Dom Hallas.
If the government really wants a second Big Bang, this was a pretty good start. The commitment of pension funds to deploy into unlisted assets like venture capital funds has been widely welcomed among the tech startup ecosystem.
Like many others, we have been campaigning for movement on pension funds for years – we’ve been fond of pointing out that the pension funds of Canadian teachers have profited more from the success of Silicon Roundabout than UK pensioners – or indeed most startup employees themselves.
But there’s also something bigger at play. Jeremy Hunt’s Mansion House speech this week should be taken as the first real acknowledgement from the City that things couldn’t go on as they have done. But for too long a ‘small c’ conservatism within the city has held everyone back – from startups to savers. So the deal announced this week has the potential to bring about a Big Bang 2.0 – but to make this real, we can’t stop with one big change.
So we’re delighted at the prospect of significant funding, and those signing the voluntary compact should be lauded for doing so, but now we need more. With both sides truly at the table, the hard yards can begin. For their part, the venture community needs to take a critical look at how they are often caricatured in order to sort the popular fiction from the facts. They have distinct investment models and market dynamics – but they are a proven route to returns. With bond yields going up, the pensions industry don’t need another excuse to load up on gilts and treasuries, so it’s crucial that venture funds show how the long-term returns in UK tech will shape up, building an evidence base for previous pension fund successes in the asset class.
There’s also the risk that the funds on the table could be a much smaller pile than expected – The £75bn announced assumes £50bn will come from auto enrollment pensions and £25 billion from Local Government schemes. Of the nine that did sign up to the pact, 5 per cent of their total assets would be closer to £20bn, with the shortfall contingent on the smaller DC pensions schemes playing ball. We need to ensure that it doesn’t stop with the nine – but goes further.
Above all though, it’s not just about pension funds. It’s about conservatism in our corporates which mean they invest less in corporate venture than their global counterparts. It’s about extracting true commitments from investors to back the innovative proposals from the London Stock Exchange that will allow private companies to create secondary liquidity. And it’s about making sure that once innovative companies do list – they can do so in a way that suits them best and backs them to the hilt.
The prospects are positive. With the Mansion House speech, the wheels are in motion to reshape the city for the future. If we don’t, startups might find the deal this week sold them a doer-upper, not the mansion the Chancellor promised.