What does the Mansion House Compact mean for pension funds and VCs?

UK Chancellor, Jeremy Hunt, recently announced that he had struck an agreement with nine major UK pension funds to invest at least 5% of their default funds into the nation’s start-ups and fast-growing companies by 2030 — a move hailed by venture capitalists as an important step towards mobilising more capital for homegrown innovation.

The agreement could unlock £50bn in assets from private DC pension schemes by 2030, according to the government. This is a considerable sum given that UK tech only raised £24bn in 2022. In his speech, the Chancellor said that defined contribution (DC) pension funds currently invested under 1% of their assets in unlisted equity investments.

This is certainly an interesting deal and is a firm commitment to the UK VC eco-system. 5% allocation is significant and a strong statement that will certainly be a boost to UK business.

It is only right that UK pensioners should get the opportunity to back the best of British start-ups and for the UK to be an attractive hub for entrepreneurship with the right infrastructure and pools of capital to tap into.

The headline ambitions of the UK becoming the next Silicon Valley is admirable, but it is important that the UK is open-for-business and seen as an attractive market to invest. The dearth of new listings on the London Stock Exchange in 2022/23 has further heightened the need to make sure the right fundamentals and conditions are in place to attract the fastest growing companies in the world to grow and list in the UK.

DC pensions are the largest part of the pensions market now and with the shift from defined benefit (DB) to DC (DB schemes will increasingly be bought out by insurers thanks to improvements to funding levels as interest rates have risen) there is a well-qualified opportunity to invest more adventurously.

The Australian pensions market sees a DC system with higher investment allocations to unlisted equity and infrastructure. They have seen that progress comes faster by getting bigger schemes to work together. Hunt is pushing for consolidation of the UK’s pension schemes in order to pool their funding and create better returns for future retirees.

Overall, it is a positive move by the government and the participating funds. As long as the agreement is executed in the right way and the risks are managed appropriately, further investment in UK start-ups can only be a good thing.

Amanda Floyd is a Director at Beaumont Bailey and leads the Investment practice. She has over a decade of international head-hunting experience across the investment management, asset management, pensions and real estate sectors. If you would like to learn more about Beaumont Bailey’s Investment and Board Solutions practice, then please email Amanda: Amanda.floyd@beaumontbaily.com