Stay informed with free updates
Simply sign up to the Pensions industry myFT Digest — delivered directly to your inbox.
Pension funds should invest more in Britain’s fast-growing science and technology groups, a UK minister has said in the latest example of the government’s attempts to direct how retirement savings are allocated.
Ahead of an event hosted by the British Private Equity & Venture Capital Association on Thursday, science and technology minister Lord Patrick Vallance said there were “far too many UK companies operating at the cutting-edge of emerging technologies, like AI, biotechnology and quantum to which UK investors are underexposed”.
His comments come as the government is trying to push the UK’s defined contribution (DC) and local authority pension funds to invest more in private markets.
Last year, chancellor Rachel Reeves said her plans to consolidate the schemes, which have over £1tn of assets combined, could unlock £80bn of investment to drive economic growth.
This year, 17 of the UK’s largest DC pension providers committed to invest at least 5 per cent of their assets in British private markets. But so far the government has focused on encouraging pension funds to invest more in infrastructure and private equity, with less focus on the more risky venture capital sector.
A report published today by industry body Pensions for Purpose found that DC schemes invest only 0.5 per cent of their assets, totalling around £3bn, in venture capital and growth equity.
To help investors better identify the UK companies, sectors and regions to target for investment, Vallance also presented a map showing areas and regions where networks of businesses and research institutions benefit from proximity to one another and appear ripe for investment.
He highlighted north-west England, where life sciences companies are developing new drugs to fight cancer and inflammation and vaccines to protect against bacteria behind diseases such as pneumonia and sepsis. Another location was Glasgow, which is building the satellites that help to keep Britons connected.
But some pensions experts remain unconvinced that venture capital is an appropriate investment for retirement funds, noting liquidity and complexity concerns and the government’s own expectations for performance.
Forecasts from the government’s actuarial department show its “private market” model portfolio — with 10 per cent of assets allocated to infrastructure and 5 per cent to private equity — delivered just 2 per cent more over 30 years than its equivalent “baseline” portfolio without exposure to private markets.
“DC savers should be investing in simple, transparent and low-cost assets, not complex, opaque and expensive high-tech start-ups,” said John Ralfe, an independent pensions consultant.
A study from asset manager Schroders found that between 2009 and 2023, around 10 per cent of venture funds globally failed to grow or preserve their assets, compared with 6 per cent for private equity.
However, almost three times the proportion of early-stage venture funds generated a total return multiple of more than three times the capital invested compared with buyout funds, which invest in later-stage companies.
“Venture investing does not come without risk, but it is the potential for significant outperformance that comes with investing in innovative growth businesses that drives the investment case for pension savers,” said the Department for Science, Innovation and Technology.
