- The newly announced Compact is poised to provide a vital boost to high-growth clean tech start-ups and green innovators in the UK, countering fears that such enterprises might seek more favorable market conditions in the US or Europe.
A consortium of 20 prominent venture capital and growth equity companies, collectively overseeing a staggering £25 billion in assets under management, has embarked on a mission to invigorate British pension investments in high-growth enterprises. This ambitious initiative, known as the Venture Capital Investment Compact, has garnered resounding support from Chancellor Jeremy Hunt and aims to channel £50 billion of capital into the UK economy by the close of this decade.
The Compact builds upon Chancellor Hunt’s groundbreaking Mansion House speech in July, where he unveiled the Mansion House Compact. This agreement, forged between nine of the largest defined contribution pension providers in the UK, commits to allocating five percent of their default funds in unlisted equities by 2030. This move is set to unlock £50 billion of capital from defined contribution funds within the same timeframe.
The creation of this new Compact seeks to bolster investment from defined contribution funds into unlisted equities, responding to calls for the government to enhance the UK’s appeal to investors in a fiercely competitive global market, particularly within the realm of clean technologies. Presently, only 0.5 percent of UK defined contribution assets under management are invested in these assets, encompassing venture capital and growth equity, according to research by the City of London Corporation.
With the adoption of the Inflation Reduction Act in the USA in summer 2022, a surge of subsidies and incentives for clean technologies and renewable energy was unleashed, triggering a worldwide race towards green investment. The EU and China swiftly followed suit with ambitious net-zero policies. In this context, concerns have emerged about the UK’s green economy potentially lagging behind, urging the government to establish a coherent and stable policy framework to attract investment in support of the net-zero transition.
The newly announced Compact is poised to provide a vital boost to high-growth clean tech start-ups and green innovators in the UK, countering fears that such enterprises might seek more favorable market conditions in the US or Europe.
Chancellor Hunt underlined the pivotal role of the Compact in stimulating much-needed investment into the UK economy. He emphasized, “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 further projected potential gains of up to £1,000 for British pension pots.
As signatories to the compact, the 20 firms have voluntarily committed to extending invitations to UK pension funds, welcoming them as limited partners into their managed funds. This collaboration will focus on crafting tailored investments, sharing best practices, and establishing engagement protocols for operating within private markets, involving the trustees of defined contribution schemes, as well as their advisers and consultants.
BVCA Chief Executive, Michael Moore, emphasized that UK savers should have equal opportunities to invest in innovative firms as their overseas counterparts, highlighting the need to provide British pension savers access to this significant opportunity. He noted, “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.”
Andrew Williamson, Committee Chair of BVCA’s Venture Capital Investment Compact and Managing Partner of Cambridge Innovation Capital, emphasized that this compact signifies the venture capital industry’s dedication to collaborating with pension schemes, addressing barriers faced in allocating to this asset class. This collaboration aims to enable savers to reap the potential net returns arising from investments in unlisted equity, such as private capital funds, as part of a diversified portfolio.
