UK pension funds are making a default commitment to allocate 5% of their funds to private UK assets, which is being seen as a major boost for businesses seeking venture capital.
The British Private Equity and Venture Capital Association (BVCA) has welcomed a new commitment made by several UK pension funds to target a default allocation target of 10% to “private assets” (with 5% in the UK) by 2030.
The Pensions and Lifetime Savings Association (PLSA), the Association of British Insurers (ABI) and the City of London Corporation have announced a new joint initiative, the Mansion House Accord. This will see 17 pension schemes and providers pledge to allocate at least 10% of defined contribution (DC) default funds to private markets and at least half of this to UK assets by 2030.
According to the Treasury, the agreement will see more than £50bn mobilised over the next five years, including £25bn for UK investments.
But the lobbying of fund managers is stepping up this week with the BVCA and other venture capital businesses making the case that their asset class can also deliver strong returns for investors.
Andy Bloxam, Managing Director of Foresight Ventures said: “As an international investment manager headquartered and listed in London, we welcome this boost to the UK venture capital market and the ambitious, smaller businesses within it.
“Our VC sector has tremendous growth potential, driven from the world class universities and entrepreneurship across the country. From Foresight’s 10 offices across the UK, we have seen this first hand over decades while delivering positive financial returns for our LGPS investors through our regional SME investment funds.
“The Foresight Ventures team looks forward to achieving more of the same at great scale with the wider pension industry, creating the sort of investment and growth opportunity only seen in the US in recent history.”
In February 2024, pension funds signed up to the so-called “Mansion House Compact” to improve on the £800m of unlisted equity assets in their funds, which BVCA research has claimed is the equivalent of 0.36% of the total value of their DC default funds (£219bn).
Michael Moore, chief executive of the British Private Equity and Venture Capital Association (BVCA), welcomed the commitment to and urged pension funds not to row back on commitments made under the previous Mansion House Compact.
“This agreement could be a huge step forward for the UK economy if the signatories follow through on their commitments,” he said.
“Right now, it is primarily overseas pension savers’ retirement funds that are benefitting from breakthroughs made by innovative British companies. UK venture and growth funds support the development of fast-growing British companies operating in sectors of the future such as life sciences, AI and net zero.
“That is why we value the assurances of the signatories that the Accord, whilst expanding their focus to new areas such as infrastructure, maintains the pension industry’s resolve to increase investment in UK venture and growth equity funds.
“It is an important statement that the new Accord does not dilute the commitments made under the previous Mansion House Compact.
“We also welcome the Government’s commitment to prioritising reforming the pensions system to increase investment into British scale-ups, while enabling savers to diversify their portfolios and access the strong returns generated by private capital.”
