Some of the largest pension schemes and investors are exploring allocations to a scale-up fund dedicated to UK businesses, according to an announcement from the government today (27 July).
Nest, Railpen, and three Local Government Pension Scheme pools are all in talks about how to establish an institutional-style investment fund to help UK businesses scale up using pension capital.
The move is the latest in a series of initiatives aimed at getting UK institutions to invest in UK companies during a development stage in which historically most funding comes from abroad, in particular the US.
The government, under new prime minister Andy Burnham, wants the new vehicle to reach £1bn in size for investment into UK businesses. Burnham said the new fund would “help unlock good growth in every postcode, connecting pension investment with the entrepreneurs and technologies that will reindustrialise Britain and create the jobs of the future”.
Chancellor John Healey, appointed to the role earlier this month, said: “We create great companies in Britain but don’t do enough to grow them with British capital and keep profits in the UK. I want the UK to become the best place in the world both to start and scale a business, with investment, jobs and skills in every region.”
The fund would target opportunities in science and technology, according to a government press release, with the British Business Bank working alongside pension investors to connect them to potential investment opportunities.
Share your views on DC investment in venture capital and private markets
Pensions Expert has partnered with CACEIS to conduct research into how defined contribution pension schemes are allocating to private markets such as venture capital. Click here to participate in our short anonymous survey, and you could win a £100 M&S voucher.
‘Vote of confidence in UK innovation’
Railpen has been a leading investor in the UK’s science and technology sector for some time, and last year called for the creation of a ‘scale-up’ capital fund.
Writing for Pensions Expert in December, Julia Diez, the £34bn pension fund’s head of UK productive assets, said “illiquidity, a scarcity of scale-up investment capital, and fragmentation” in the UK venture and growth equity markets had made it difficult for domestic companies to access reliable long-term funding from local investors.
Nest, meanwhile, announced earlier this month its intention to allocate up to £1bn towards venture capital strategies through a partnership with Schroders Capital.
As well as Nest and Railpen, three of the six LGPS asset pools are involved in the discussions: Border to Coast Pensions Partnership, Local Pensions Partnership Investments, and LGPS Central.
Jonathan Reynolds, secretary of state in the newly established Department of Business, Innovation, Science and Trade, said the institutions’ involvement was “an important vote of confidence in UK innovation”.
“By investing in innovative UK companies, they can help drive long-term growth while helping pension savers share in their success,” Reynolds said, adding that the government was “determined to put science, technology and innovation at the heart of our economic future”.
Michael Moore, chief executive of UK Private Capital, the trade body for the venture capital sector, welcomed the new fund and urged stakeholders to “build on this momentum”. He argued that it was “vital that more pension capital reaches specialist venture and growth funds” and called for “greater urgency from more DC schemes” to invest in venture.
However, Elisabeth Storey, head of pensions at RSM UK, warned that trustees must balance the pressure to invest in specific asset classes with their fiduciary duty.
“Pension schemes have an important role to play in supporting economic growth, but trustees will need confidence that any increased allocation to growth assets is supported by strong governance, appropriate expertise, and a clear investment rationale,” Storey said. “How are trustees going to balance investment in this new fund against that [fiduciary] responsibility, if the two are not aligned?”
What the investors said
“By bringing together long-term pension capital with the UK’s most ambitious growth businesses, we have the opportunity to create a virtuous cycle – supporting innovation, attracting further private investment, and delivering strong long-term outcomes for pension savers.”
“The UK Scale-up Fund represents a compelling investment opportunity where disciplined, patient capital can help growing companies scale, provide attractive returns for pension savers and generate lasting economic growth.”
“We believe there can be a strong alignment between delivering attractive long-term outcomes for members and supporting innovation, job creation and economic growth across the UK.”
“By combining scale, collaboration, investment discipline, and a strong pipeline of high-quality opportunities, this initiative can help deliver attractive long-term outcomes for pension savers while enabling more innovative UK businesses to grow and compete.”
“The UK is home to some outstanding businesses and entrepreneurs… The proposed fund could help bring together institutional investors at scale and improve access to opportunities that may otherwise be difficult to achieve individually.”
“The UK is a global hub for innovation and entrepreneurship, but it’s clear that many scaling businesses struggle to access the capital they need to reach their full potential. This cross-industry initiative will give pension funds the opportunity to generate sustainable, long-term returns while supporting the next generation of British success stories.”
