A consortium of DC and DB pension providers, including Nest and the LGPS, will work with the British Business Bank to create a new £1bn-plus UK scale-up fund, to invest in high-growth British science and technology companies.
This latest private markets initiative has received the backing of the new prime minister Andy Burnham and chancellor John Healey.
These major pension providers are exploring how to channel more domestic pension capital into innovative UK businesses, helping UK firms commercialise new technology, scale more quickly and create skilled jobs, while also delivering long-term returns for pension savers.
This initiative is also supported by the British Business Bank and The Office for Investment. The British Business Bank will work alongside these pension investors to support the fund’s development and co-invest in key opportunities.
The government said the fund would help address the UK’s scale-up funding gap by connecting institutional investors with innovative companies, founders and venture capital managers.
Prime Minister Andy Burnham described this new fund as a “vote of confidence in British business, British talent and British ambition”. He adds: “This new fund would help unlock good growth in every postcode, connecting pension investment with the entrepreneurs and technologies that will re-industrialise Britain and create the jobs of the future.
“That means more opportunities for working people, stronger returns for savers, and more businesses choosing to start, grow and stay in Britain.”
Chancellor of the Exchequer John Healey adds: “We create great companies in Britain but don’t do enough to grow them with British capital and keep profits in the UK. I want the UK to become the best place in the world both to start and scale a business, with investment, jobs and skills in every region.“We have the third largest Venture Capital market in the world and this new £1bn fund will mean more British money to back British scale-ups and better returns for pension savers.”
This initiative will be supported by Nest, the UK’s largest DC master trust. Its CEO Ian Cornelius says: “As a long-term investor on behalf of more than 14 million members, Nest sees an important role for pension capital in helping successful UK businesses access the funding they need to grow.
“We believe there can be a strong alignment between delivering attractive long-term outcomes for members and supporting innovation, job creation and economic growth across the UK.”
Other pension investors supporting this new fund include Railpen, LPPI, LGPS Central and Border to Coast, with Railpen chief executive Andy Bord commenting that the proposal represented a “compelling investment opportunity” for patient capital.
Industry bodies also welcomed the announcement but said its success would depend on ensuring capital reached specialist investment managers.
UK Private Capital chief executive Michael Moore said: “The new UK Scale Up Fund is a welcome signal that the government understands the urgency of getting more domestic capital mobilised into venture and growth capital to close the scale up gap.
“Now we must build on this momentum. It is vital that more pension capital reaches specialist venture and growth funds, that have the expertise and track records to identify, back and scale the next generation of British success stories. We also need to see greater urgency from more DC schemes.”
Elisabeth Storey, head of pensions at RSM UK, said trustees would need confidence that the new vehicle could deliver appropriate outcomes for members.
She says: “The success of initiatives like this will ultimately be measured not by the amount of capital committed, but by the outcomes delivered for pension savers. Pension schemes have an important role to play in supporting economic growth, but trustees will need confidence that any increased allocation to growth assets is supported by strong governance, appropriate expertise and a clear investment rationale.
“Trustees have a fiduciary duty to act in the best interests of their members. How are trustees going to balance investment in this new fund against that responsibility, if the two are not aligned?”
