Pension reforms boost for Scottish scale-up investment - Michael Moore

I’m delighted to be chairing the second annual Invest2Scale conference in Edinburgh later this month, an event which supports the best scale-up companies in Scotland by providing them with direct access to a range of investors including venture capitalists.

This year’s gathering follows further good news for Scottish scale-up businesses when Chancellor Jeremy Hunt set out his Mansion House reforms in July, measures that will enable more UK pension savings to be invested in private capital.

The UK has the largest pension market in Europe, worth over £2.5tn. Unlocking just a fraction of that to invest in private capital is great news not just to pension savers but also to aspirational businesses.

British Private Equity & Venture Capital Association (BVCA) research found that, as a long-term average, pension funds from outside the UK invest 16 times more in British private capital than pension funds based here last year. These overseas investments have significantly benefitted retirees in places such as Ontario and California, so it’s a welcome development that their UK counterparts will now get the same opportunities.

Retirement funds will grow if more UK pension savings are invested in private capital (Picture: stock.adobe.com)

The UK private capital industry continuously outperforms public markets. As of last year, the sector provided a 10-year horizon return of 17% per year – well above the returns generated by principal comparators in public markets. These impressive returns are the basis for Mr Hunt’s claim that his reforms could boost a typical pension by over £1000 per year.

The Mansion House reforms will also provide a much-needed boost to many innovative UK businesses, especially those within key sectors including biotech, fintech and AI. Here in Scotland, we have many such businesses which are primed to scale their operations but also require private capital investment to ensure they can maximise their global potential.

Despite the UK having one of the largest pensions markets in the world, years of fragmentation and well-intentioned risk-aversion has led overseas pensions to invest considerably more in British venture capital and private equity than our homegrown funds. You need only look at the success of Australian and Canadian pension schemes, which have achieved economies of scale and ultimately better retirement outcomes for their savers, to see the benefits delivered through their UK investment strategies.

This lack of investment from own pension funds has also resulted in a raft of UK businesses, including many from Scotland, going elsewhere – typically across the Atlantic – to find private capital. These reforms should help address this problem and ensure we retain talent, intellectual property, and the economic champions of the future.

​Michael Moore is chief executive of British Private Equity & Venture Capital Association

Last year, Scottish companies attracted £605m in private capital investment, with a significant portion of this going towards ground-breaking spin-outs emerging from Scottish universities. This influx of capital has not only bolstered the technological landscape but has also had an impact on the job market, supporting approximately 300,000 jobs in all sectors in Scotland, both directly and indirectly, and making a substantial contribution to our economy.

As we will witness first hand at this month’s Invest2Scale conference, there are a number of scale-up businesses in Scotland that are on the verge of becoming global entities. The availability of additional UK private capital through the pension investment reforms will play a key role in driving their success.

As welcome as the Mansion House reforms are, this must be the start of a process which will help support aspirational businesses and generate the investment they need to reach their full potential.

Michael Moore is chief executive of British Private Equity & Venture Capital Association