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In a groundbreaking move, a coalition of 20 dynamic venture capital and growth equity enterprises has rallied with a bold mission—to supercharge British pension investment in high-growth enterprises. Their visionary objective? To channel a staggering £50 billion of vital capital into the heart of the UK economy, they aim to achieve this momentous feat before the curtain falls on this decade.
These 20 powerhouses, collectively stewarding an impressive £25 billion in assets under management (AUM), have inked their commitment to the awe-inspiring "Venture Capital Investment Compact," officially unveiled today. This remarkable compact is the brainchild of none other than the British Private Equity and Venture Capital Association (BVCA), and it has received an emphatic nod of approval from Chancellor Jeremy Hunt himself.
But what sets this compact apart? It's built on the visionary foundations laid out by Hunt during his electrifying Mansion House address in July. Within that captivating speech, Hunt unveiled the "Mansion House Compact," an extraordinary covenant inked by the nine behemoths defined contribution (DC) pension providers in the United Kingdom. Their audacious pledge to earmark a substantial five percent of their default funds for uncharted equities by the time the clock strikes 2030, thereby unlocking a jaw-dropping £50 billion from the hallowed coffers of DC funds.
The birth of this new compact is nothing short of a revolution. It aspires to galvanize DC funds into a whirlwind romance with unlisted equities, responding to the persistent clamor for the UK to shine brighter in the fiercely competitive global arena, particularly in green technologies. A meager 0.5 percent of UK DC AUM has ventured into these promising waters, encompassing venture capital and growth equity. This revelation stems from a comprehensive study by the esteemed City of London Corporation.
Meanwhile, the USA ushered in a new era with the Inflation Reduction Act in the scorching summer of 2022, a monumental piece of legislation promising to release a flood of subsidies and incentives worth hundreds of billions for the flourishing green technology and renewable energy sectors. This action has set off a global sprint towards environmentally-conscious investments. The European Union, not one to be outdone, has elevated its net zero ambitions, while China continues its breathtaking pace in electric vehicles and renewable energy technologies.
During this global green frenzy, concerns have grown like wildfire that the UK's green economy might be left in the shadows. Repeated calls echo through the corridors of power, demanding a clear and unwavering policy framework from the government to pave the way for investments supporting the transition to net zero. With bated breath, we await the impact of the compact unveiled today, with hopes soaring high that it may provide a lifeline to burgeoning clean-tech startups and visionary green innovators across the UK. The fear persists that without such support, these pioneering firms may set their compasses towards more favorable horizons in the United States or the welcoming embrace of Europe.
Hunt said the compact could be vital in ramping up much-needed investment into the UK economy. "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."
As signatories to the compact, the 20 firms have voluntarily committed to inviting UK pension funds as limited partners into their managed funds, collaborating with pension investors to assess how they can produce investment which is tailored to their needs and sharing best practice and rules of engagement for working in private markets with the trustees of DC schemes, as well as their advisers and consultants, the compact said.
BVCA chief executive Michael Moore said UK savers should be given as much chance to invest in innovative firms as overseas investors. "Many overseas investors have jumped at the chance to invest in - and benefit from - the performance of innovative UK firms," he said. "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 venture capital innovation in the UK while helping businesses to grow, succeed, and create jobs."
Cambridge Innovation Capital managing partner and BVCA Venture Capital Investment Compact committee chair Andrew Williamson added: "The compact demonstrates that the venture capital 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."
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