The boss of the state economic development agency has warned British pension funds not to overlook the “goldmine of opportunity” in private UK companies as it prepares to put hundreds of millions of pounds of retirement savings into venture capital.
Louis Taylor, chief executive of the British Business Bank, also called for a “Festival of Britain on the innovation economy” to increase investors’ understanding of “how strong the UK is”.
Ministers are to be handed a contentious “reserve power” that will allow them to force pension funds to invest in British assets but Taylor told The Times: “If everybody appreciated properly the opportunities there are in the UK, nobody would need mandating.”
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His comments follow criticism from John Flint, the outgoing boss of the National Wealth Fund, that attempts to boost UK growth and productivity are being undermined by a risk-averse finance industry.
The British Business Bank, established in 2014 to improve the flow of finance to private companies, has been given a significantly enhanced role following the spending review and industrial strategy, with the government committing £6.6 billion of new capital to the organisation last month.
Its total firepower stands at £25.6 billion, and its annual investments are expected to grow by two thirds, to £2.5 billion a year, as part of a government target to deliver the “UK’s first trillion-dollar technology business”.
The agency provides wholesale finance to equity and debt providers but can also invest up to £60 million directly in individual companies, up from £15 million.
Taylor said the bank’s new British Growth Partnership, an investment vehicle seeking to raise hundreds of millions of pounds from UK pension funds and other institutions to back British venture capital, is on track to make its first investment this year.
John Flint of the National Wealth Fund says attempts to boost UK growth are being undermined by a risk-averse finance industry
SONJA HORSMAN FOR THE TIMES
Aegon UK, NatWest Cushon and London CIV, a grouping of local government pension schemes, have expressed interest in backing the scheme, and Taylor said a number of other pension investors were in talks over doing so.
He said this showed there was a growing appreciation of a “goldmine of opportunity which is currently being more appreciated by overseas investors than domestic”.
The move to encourage more pension investment in UK assets has been contentious, with critics saying fund managers should focus on the best returns for savers rather than national economic aims.
Taylor, formerly boss of UK Export Finance, the government’s export credit agency, said companies being able to access more UK investment would create a “virtuous circle” whereby if “great opportunities get funded in the UK, more opportunities will come to the UK to get funded”.
He said research suggested that UK companies raised about a third to a half of what their US equivalents raised “at pretty much every stage of development”. That was one of the reasons promising UK companies were often acquired by overseas investors before they had reached their potential.
“We need a UK counterbalance to overseas capital in order to retain these companies in the UK,” he said.
The bank is also launching a new £4 billion fund to invest in the eight “growth-driving” sectors identified by the government as part of the industrial strategy. It is hoped the fund will attract £12 billion of private capital alongside it.
Taylor — who was paid £356,400 in the year to March 2024, although that could rise to more than £480,000 if core performance targets are met — said he was mindful of the risk of “a tidal wave” of capital flooding the venture market. Critics point to the difficulties private equity groups are having in exiting past investments amid scepticism about valuations.
During talks over expansion of the bank’s work, Taylor said “ministers challenged us as to whether we could do more”.
“Where we have landed is a good place … where we will be crowding [private] money in rather than crowding money out,” he said.
The agency now has a permanent capital base, meaning it has greater flexibility to reinvest returns rather than return them to the government.