24 Oct 2023

Twenty leading firms sign Venture Capital Investment Compact to boost pension fund investment in high-growth companies

Twenty of the UK’s leading Venture Capital (VC) and Growth Equity firms have signed the Venture Capital Investment Compact pledging to support efforts to unlock British pension investment in high-growth companies.

Convened by the British Private Equity and Venture Capital Association (BVCA), the Compact commits signatories to working closely with the pension funds which were enlisted in the Government’s Mansion House agreement.

Earlier this summer, the City of London Corporation coordinated the Mansion House agreement, committing nine of the UK’s largest pension funds to the objective of allocating at least 5% of their default funds to unlisted equities by 2030. The new Venture Capital Investment Compact builds on that agreement and will help to unlock over £50 billion of new capital by the end of the decade.

The signatories of the new Compact, which include Octopus, Balderton and Lakestar, represent much of the UK VC and growth equity market and support over 1800 companies and have over £25 billion of Assets under management (AUM).

Commenting on the launch on the Compact, the Chief of Executive of the BVCA, Michael Moore, said:

“Many overseas investors have jumped at the chance to invest in – and benefit from – the performance of innovative UK firms. 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.”

The Chancellor of the Exchequer, Jeremy Hunt MP, said:

“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. This could boost British pension pots to the tune of £1k.”

Andrew Williamson, Managing Partner, Cambridge Innovation Capital and Chair of the BVCA’s Venture Capital Committee, said:

“The Compact demonstrates that the VC industry is committed to partnering with pension schemes to help them address the barriers they face when allocating to this asset class, in order to allow savers to benefit from the higher potential net returns that can arise from investment in unlisted equity such as private capital funds as part of a diversified portfolio.”

According to the City of London Corporation, only 0.5% of UK DC pension assets are invested in unlisted UK equities such as venture capital and growth equity. The Mansion House agreement and Venture Capital Investment Compact will seek to address this.

As part of the Venture Capital Investment Compact, signatories voluntarily commit to:

Attracting UK pension funds as limited partners into the funds they manage.
Partnering with pension investors to consider how they can produce effective investment structures to suit their needs.
Sharing best practice/rules of engagement for working in private markets with DC schemes, particularly trustees and their consultants/advisers.

The BVCA has also commit to a range of measures to support the outcome of the Compact, including:

The establishment of the Pensions & Private Capital Expert Panel, a group made up of senior private capital and pensions industry representatives, as well as leading advisers and consultants, to provide advice and guidance to firms on the delivery of the Compact. The group will report on the Compact’s delivery and help design effective investment structures.
Hosting the Pensions Capital Deployment Summit in 2024, bringing together pensions investors with private capital fund managers in a bid to plan and support the development of new fund vehicles.
New training programmes will be created alongside the pensions industry to help deepen the pension trustees’ knowledge of private capital and improve trustee capability.

Research has found that UK managed Venture Capital and Growth Equity funds generated annual returns of 16.7% and 12.8% respectively over the ten years to 31 December 2022 – exceeding the 6.5% p.a. achieved by the FTSE All Share Index – showing the value these funds bring.

This is in part why international pension schemes invest so much into UK funds - notably more compared to British pension schemes. In 2022, Swedish pension funds were the largest source of pension scheme capital for UK venture funds.

Dr Dan Mahony, the UK Government’s Life Sciences Investment Envoy, said:

“The UK has an expert community of investors ready to work with pension funds to ensure everyone saving for their retirement benefits from a diversified portfolio of high-quality private companies with growth potential. The VC Investment Compact is an important signal of their commitment to working collaboratively with pension funds, government and the UK’s innovative industries to overcome the remaining barriers that will unlock up to £50 billion of new investment. There are many more expert investors beyond the initial signatories of the Compact and I look forward to more of them joining and working with us to really move the dial for pension savers and innovative young businesses alike."

Steve Bates OBE, CEO of the UK BioIndustry Association (BIA), said:

“Nearly two-thirds of pension savers recently surveyed said they want to know where their money is being invested. The detail matters – people need to know if their money is being invested in another online betting app or a company from Cambridge that is trying to understand why some people survive cancer whilst others die, with the aim of developing therapies that will allow us all to survive.

“Alchemab, and many other companies recently identified by global consultants PwC as the most innovative and groundbreaking life science companies operating in the UK right now, have the potential to transform patient care in the NHS and become global success stories, delivering the return on investment that pension savers need for their retirement.

“Today’s announcements are a critical step to unlock new capital to accelerate their growth and to realise those ambitions.”

John Chilman, Chair of the PLSA Policy Board, said:

“Improving pensions adequacy for DC savers is the number one priority for the PLSA, and so we support initiatives which aim to facilitate access for schemes to more productive assets, which can include private equity and venture capital.  As such, this commitment from the VC industry to work together with pension schemes to increase potential investment opportunities in this area is welcome, and we are pleased to be able to contribute the perspectives of our members to the work of the expert panel.”

Notes to editors

Signatories

IQ Capital
Cambridge Innovation Capital
Amadeus Capital
Oxford Science Enterprises
Albion
Molten
Octopus
BGF
Frog Capital
Epidarex
Abingworth
Notion
MMC
Lakestar
SV Health Investors
Beringea
Northern Gritstone
Balderton
Local Globe
NorthEdge

Returns Data

Returns data is taken from the latest edition of the BVCA’s Performance Measurement Survey, published in association with PwC. The full report can be found here, alongside a data pack. Data presented is ten-year horizon returns, as Venture Capital and Growth Equity are long-term asset class, and horizon returns allow us to compare with public markets. Growth Equity figures are additional BVCA analysis using the Performance Measurement Survey data set, using the combined Small and Mid-private equity categories as an indicative proxy.

The Compact

The full Compact text reads as follows:

The Venture Capital Investment Compact

Purpose

This Venture Capital Investment Compact (the ‘VCIC’ or ‘Compact’) sets out how UK venture capital and growth equity fund managers aim to strengthen partnerships with UK pension investors. The Compact is a voluntary expression of intent by signatories to help facilitate investment by defined contribution (‘DC’) and other pension funds into venture capital and growth equity, with a view to building private capital investment for the future. This will allow UK pension schemes to benefit from the higher potential net returns that can arise from investment in unlisted equities such as those in private capital funds as part of a diversified portfolio, acting consistently with the best interests of UK long-term savers.

The Compact

Building long-term partnerships between pension schemes and private capital fund managers

By signing this Compact, signatories signal their willingness to attract long-term patient capital in the form of UK pension providers as investors in UK venture capital and growth equity funds. This Compact is intended to complement the Mansion House Compact, dated 10 July 2023, where nine of the UK’s largest DC pension providers committed to the objective of allocating at least 5% of their default funds to unlisted equities by 2030. Signatories to the VCIC believe that the intention to unlock over £50bn of capital over this period represents a unique opportunity to benefit both pension savers and the wider economy.

The long-term support of the Government, and of the relevant regulatory authorities, will be a key enabler to achieve the intent of these proposals. Signatories note the importance of recent and ongoing pension reforms, as well as broader steps to support the domestic science and technology sector, to develop the international competitiveness of the wider economy and highlight the need for continued progress. To unlock capital and achieve benefits for pension savers, venture capital, growth equity and the wider private capital industry will need to continue working with the pensions industry to develop effective investment structures and precipitate joint action. Signatories intend to take meaningful action within the next 12 months to enable progress, working alongside pension providers.

Specifically, alongside the supporting actions of Government and acting in the best interest of our investors, signatories commit to:

Attracting UK pension funds as limited partners into the funds they manage or advise.
Partner with pension investors to consider how they can produce effective investment structures to suit their needs to allow allocations to funds in the interest of savers.
Share best practice/rules of engagement for working in private markets with DC schemes, particularly trustees and their consultants/advisers.

Signatories encourage peers to commit to this Compact, thus demonstrating that the industry is committed to partner with pension schemes to accommodate their needs when allocating to this asset class.

Separately, the British Private Equity and Venture Capital Association (‘the BVCA’) agrees to undertake the following actions to ensure that significant progress is made within 12 months of the signing of this Compact:

To work with the wider industry to establish a Pensions & Private Capital Expert Panel to develop effective investment structures and share market best practice and produce guides/reports.
To develop events to connect pensions investors with private capital fund managers and highlight potential investment opportunities.
To work with the pensions industry to create training programmes and best practice documents to develop greater understanding of the private capital industry.
To report against progress from BVCA members in attracting UK pensions capital into their funds.

For media enquiries, please contact:
Karen Keany, BVCA: [email protected]