The British Business Bank is launching a series of funds that will offer defined contribution (DC) pension schemes access to UK and overseas venture capital investments.
The bank will establish an investment vehicle that will leverage its position as the biggest domestic investor in UK venture capital to facilitate access for pension schemes to high growth companies as promoted by Chancellor Jeremy Hunt in this year’s Mansion House speech.
A Growth Fund that will draw on the British Business Bank’s permanent capital base of over £7bn is at the design phase, with the bank consulting with the industry on how best to structure it. The plan has received positive support from eight DC pension providers – Aegon, Aon, Aviva, L&G, M&G, Phoenix, Smart Pension, and USS – who collectively hold £350bn of DC assets.
The Chancellor has also announced progress on the Long-Term Investment for Technology and Science (LIFTS) initiative, with the British Business Bank moving into contractual discussions with two successful LIFTS bidders with the intention of investing a total of £250m. These proposals would create two new investment vehicles that are accessible to pension fund capital, unlocking over £1bn of total private capital, including substantial DC pension scheme capital, with the aim of supporting innovative companies in the UK.
The Chancellor has also announced that the £375m Future Fund: Breakthrough programme is being extended with at least an additional £50m to invest in high-growth, innovative firms. The programme, delivered by the bank’s commercial subsidiary, British Patient Capital, makes equity co-investments with private sector investors in growth stage R&D-intensive UK companies operating in breakthrough technology sectors. The minimum total investment round size is £30m. The maximum Future Fund: Breakthrough share of an investment round is 30 per cent.
Louis Taylor, CEO, British Business Bank says: ““This package of measures has the potential to unlock billions of pounds of additional investment for the UK’s fastest growing and most innovative companies, thereby boosting the economy and driving returns for pension savers.
“With at least £50m more funding for the Future Fund: Breakthrough programme the British Business Bank can continue to support innovative high-growth, R&D-intensive British companies operating in breakthrough technology sectors.”
Alison Leslie, head of DC investment, Hymans Robertson, says: “Whilst we welcome initiatives which expand the investment universe and support savers, it will take some time for the initiative to be commercially viable for many pension arrangements. Over time however we think this is a welcome addition to the universe of investments available for DC savers focusing specifically on the UK. If the investment case stacks up, like any investment, it would in time be considered as part of the investment universe but the rationale and returns have to bear fruit.”
Tim Orton, chief investment officer at Aegon says: “Investing in private assets will be a completely new venture for many pension schemes. Alongside Long Term Asset Funds, we welcome the development of the British Business Bank’s offering as it’s important to offer a range of routes into such investments. But crucially, making changes to workplace pension investments is something which shouldn’t be rushed, which is why the Compact commitment to invest 5 per cent of default funds in private assets is looking ahead to 2030. Pension schemes must be given time to plan a considered and effective move into private assets, with improving member outcomes front and centre.”
