Win-Win Capital: How Pension Funds and Venture Capital Can Drive Mutual Growth
Over recent years, the UK venture capital landscape has witnessed significant progress in incorporating pension investments into the private capital ecosystem. Welcome initiatives such as the Mansion House compact and the Investment Compact have laid an important foundation, while the recent publication of the Final report from the Pensions and Private Capital Expert Panel has provided an essential blueprint for further reform.
We are seeing a developing industry shift from focusing solely on cost to embracing long-term value and truly recognising the win-win proposition that stands before both the Venture Capital and Pension industries. This evolution is increasingly evident in how Pension Schemes are beginning to approach their investment decisions. The move towards a Value for Money framework is a welcome development. This framework is less about comparing fees and more about understanding the quality of returns over time for savers who depend on these funds for their retirement. Such an approach is vital if we are to create a truly sustainable investment landscape.
From a policy perspective, there are several areas where further progress is essential. It is increasingly clear that regulatory frameworks need to catch up with market realities. For example, the call for the Financial Conduct Authority to update its current guidelines is not an abstract concern but a practical necessity if DC pension schemes are to gain greater access to venture and growth capital funds. Government initiatives, such as the proposed programme to accelerate DC investment, including novel ideas like a UK ‘NOVA’ scheme inspired by France, or a private capital fund directory present opportunities to bridge existing gaps. Going beyond checking boxes, the focus here must be on making strategic decisions that ensure pension investments can contribute meaningfully to the high-growth areas of our economy.
Meanwhile, practical market insights have played a critical role in advancing our understanding of the integration process. Drawing on lessons from international experiences, including those from Australia, has underscored the importance of operational factors such as the effective integration of performance fees and the development of dedicated internal private capital teams. At Cambridge Innovation Capital we have been actively working to demonstrate that aligning fee structures with performance and maintaining clear, transparent reporting standards can build the necessary trust amongst pension institutions.
Our experience has shown that cross-industry collaboration is crucial. The ongoing dialogue between regulators, pension funds, private capital investors and advisory bodies is enabling us to address issues such as liquidity expectations and risk pooling for workplace pensions. Indeed, a collaborative approach goes beyond just offering a mechanism for addressing current challenges but also ensures the necessary lines of dialogue are in place to flexibly adapt to future market developments.
In summary, while significant progress has been made in recognising and realising the potential for pension capital within the venture capital space, the journey is far from complete. It is imperative that regulatory reform continues and that we maintain an open dialogue with all involved parties if we are to truly actualise the potential win-win opportunity we are currently presented with. At Cambridge Innovation Capital, we remain committed to championing these changes and working in partnership with the entire industry to ensure that pension capital can truly drive forward high-growth innovation in the United Kingdom.
Authored by Andrew Williamson
Managing Partner, Cambridge Innovation Capital & BVCA Council Member
