Charlie Conchie interviews the biggest movers and shakers in tech, fintech and financial services. This week, it’s IQ Capital chief and the British Venture Capital Association’s pension fund guru Kerry Baldwin.
As Kerry Baldwin gathered together a room of venture capitalists and pension bosses in Westminster last month, she was apprehensive.
The two industries have often been presented as opposing sides of a heated debate over the past two years: pension money managers, the staid and risk averse stewards of retirement funds, and private capital investors, the swashbuckling risk-takers keen for more cash.
What could happen in bringing them together in a single room? She was pleasantly surprised.
“I was just so overwhelmed by the collaboration. There was a feeling of, ‘we’ve tried this, we could look at it this way. Don’t forget to think about this’,” the managing director of IQ Capital and chair of the British Venture Capital Association’s ‘Expert Panel’, tells City A.M.
“I came out of that meeting feeling ‘wow’.”
Baldwin’s new expert panelis trying to find answers to the pension question that has dominated both Conservative and Labour overtures towards the City in the past 12 months.
But the enthusiasm of those in the room may be somewhat underestimating the scale of the task.
Pension funds have been viewed as an underutilised and dormant source of cash in the UK. While countries like the US and Canada have roared ahead with investing retirement money into venture and private equity, Britain has lagged well behind.
Private markets in the UK have typically been off-limit due to the higher costs charged by money managers at VC and private equity firms. Ministers have tabled a number of measures to try and loosen restrictive charge caps and free up funding, but the efforts have simultaneously fuelled a debate around risk appetite and value for money.
Tech firms and the private capital industry say the bumper profits speak for themselves. The private capital industry on the whole outperformed the public markets with a 10-year return of 17 per cent per year, well above the 6.5 per cent offered by the FTSE All-Share, according to the BVCA (though the FTSE too has been neglected).
Pension money managers on the other hand often say they invest in the interest of their members and shouldn’t be strong-armed into an asset class.
While Baldwin says progress in breaking down the barriers has been good, it’s too early to know what the solutions might be.
“As we find the barriers or as we find solutions or potential ways through these barriers, then we’ll be sharing that,” she adds.
“We’re going to look at all the different market infrastructure and make sure that we’re going to find something that’s going to work well for all.”
Among her group’s to-do list are issues like educating pension figures on the returns on offer via the private markets, and what features might be nabbed from foreign pension systems where money is already flowing.
The private capital side of the debate was given a major boost last year as Jeremy Hunt and the Lord Mayor of London corralled ten of the top pension managers to sign the Mansion House Compact, committing them to invest five per cent of their assets in growth companies by 2030.
The former Lord Mayor of the City of London Nicholas Lyons worked alongside the government to galvanise firms to sign the mansion house compact
Nearly a hundred venture capital firms then signed a corresponding agreement later in the year. Hunt has since tabled a number of policy moves to try and encourage more money into UK companies, including forcing pension funds to disclose how much of their investment into UK firms by 2027.
“The current government has obviously been extremely supportive, but cross party, we’ve been having discussions with [Labour]. They’re very engaged and very invested in the outcome as well,” Baldwin adds.
Rachel Reeves even floated the idea of mandating funds to back UK companies last year, a policy which the BVCA itself opposes.
But for all the talk of progress, some in the industry are growing restless. The debate has been raging on for years and so-far venture firms and start-ups are yet to yield the promised influx.
“It’s all talk and no action, but I’m hoping for some tangible progress soon,” one venture capital executive told City A.M. “My view is that the carrot approach doesn’t work with these pension funds. The stick needs to come out soon unless there is some action.”
Hunt threatened as much in his budget earlier this month as he pledged “further action” if pension managers do not begin backing homegrown companies.
Those that have signed the Mansion House Compact have pledged that five per cent of their assets into growth companies by 2030. But is Baldwin confident that’s actually achievable?
“Am I confident?,” she says after a pause. “I am confident that we will produce the ways and the structures and the ability for the pension houses and everybody to choose and be able to invest in this asset class if it’s right for their members.”
The group is set to report its first tranche of findings to coincide with Hunt’s Mansion House Compact anniversary in the summer, followed by a September report and another update in March next year.
“It’s not something that can be rushed. It’s something to get right,” she adds.
However, some in the industry may be growing a little more impatient.