Pension schemes urged to embrace 'homegrown' investment opportunities

Pension schemes could see “endless potential” for allocation to venture capital and growth equity if they can shift their focus from the US to look at homegrown opportunities in the UK, Octopus Group co-founder, Chris Hulatt, has said.

Hulatt noted that the UK ranks third in the world as a great home for start-ups, according to the OECD, thanks to support mechanisms like the Enterprise Investment Scheme.

In addition to this, he pointed out that despite the challenges of the pandemic, 15 per cent more businesses were registered with Companies House in the first half of 2021 than in the same period in either 2020 or 2019, as Brits were “brimming with pent-up creativity during lockdown”.

However, Hulatt warned that there is a “snag” in the system, as whilst the UK is good at fostering start-ups it is “not so good at turning them into world beaters”, with lack of funding a large reason behind this.

He continued: “We need to think about how capital is channelled so that promising businesses are able to overcome the hurdles of scaling up. And, crucially, institutional investors need to consider whether they’re missing out on attractive opportunities to help fund these businesses.

“Pension schemes in the UK – particularly defined contribution schemes – have a huge role to play in providing this funding. In the coming months, we should see greater appetite for venture-capital investments.

"If pension funds can tear their gaze away from the US and look at homegrown opportunities in the same light, they’ll see endless potential for allocation to venture capital and growth equity.

“Over the past few years, the wider European venture-capital market has experienced a breakthrough in businesses being built on a truly global basis – from Spotify, Adyen, Klarna to UiPath.

"This is resulting in enterprise values to match – in the tens of billions of pounds. So there is a real opportunity today to invest significant sums in UK businesses that have similar potential for growth.”

In particular, Hulatt said that healthcare is one sector that has proven resilient and stable, predicting further investment in this “steadily growing sector” over the coming months.

He also suggested that the government’s new Long Term Asset Fund (LTAF) regime, scheduled to be up and running before the end of this year, should encourage UK institutional investors to feel more confident about investing in long-term, illiquid assets.

Institutional investors, including pension funds, were recently also challenged by the Prime Minister and Chancellor to invest more in long-term assets in order to allow savers to benefit "from the fruits of UK ingenuity and enterprise", and support the Covid-19 recovery.

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