The British Private Equity and Venture Capital Association (BVCA) has said it welcomes a new commitment made by several UK pension funds to target a default allocation target of 10% to 'private assets' (with 5% in the UK) by 2030.
As of February 2024, signatories of the existing Mansion House Compact hold nearly £800m (£793m) of unlisted equity assets in their DC default funds. This is the equivalent of 0.36% of the total value of their DC default funds (£219bn).
The case for investing in UK venture capital is strong, says BVCA. It says its analysis shows that while there is a wide range of returns for venture capital, the 10-year horizon internal rate of return for VC was 11% per annum for the 10 years to December 31 2023. This compares to 5.3% per year achieved by the FTSE All Share index and 7.5% achieved MSCI Europe index in the same period.
BVCA says its research shows that the vast majority of pension fund investment into venture capital funds in 2024 was committed by overseas schemes. The BVCA adds that it identified significant commitments to venture capital by US pension funds, however data collected does not show any commitments from UK pension funds.
Michael Moore, chief executive of the British Private Equity and Venture Capital Association (BVCA), said: “This agreement could be a huge step forward for the UK economy if the signatories follow through on their commitments.
“Right now, it is primarily overseas pension savers’ retirement funds that are benefitting from breakthroughs made by innovative British companies. UK venture and growth funds support the development of fast-growing British companies operating in sectors of the future such as life sciences, AI and net zero.
“That is why we value the assurances of the signatories that the Accord, whilst expanding their focus to new areas such as infrastructure, maintains the pension industry’s resolve to increase investment in UK venture and growth equity funds.
“It is an important statement that the new Accord does not dilute the commitments made under the previous Mansion House Compact.
“We also welcome the Government’s commitment to prioritising reforming the pensions system to increase investment into British scale-ups, while enabling savers to diversify their portfolios and access the strong returns generated by private capital.”
