Lord Mayor: Plug funding gap to get high-growth companies to list in UK market

The 694th Lord Mayor of London, Nicholas Lyons, will tonight (27 March) call for industry to pull together to create a future growth fund to provide a new source of investment for the UK’s world-leading tech industry.

Launching a new report, Powerful Pensions at the Innovation and Tech Dinner to be held at Mansion House, the Lord Mayor will say that whilst the UK is home to some of the most creative and innovative businesses in the world, firms are struggling to access necessary capital from investors. This growth funding gap, estimated at £15 billion per year, can hamper businesses’ ability to grow domestically and compete globally.

Addressing an audience of senior political and business figures, he will applaud the Government’s plans to assist in unlocking defined contribution pension funds. He will be speaking alongside the Rt Hon Michelle Donelan Secretary of State for Science, Innovation and Technology and Brian McBride, President, Confederation of British Industry.

The new report, developed jointly by the City of London Corporation, EY and Innovate Finance, identifies several recommendations to address the regulatory and non-regulatory barriers preventing defined contribution pension schemes from investing meaningfully in private equity as an asset class.

Recommendations include:

  • Consolidation of smaller defined contribution (DC) pension schemes, tackling structural issues on the size and scale of DC pension pots, and creating economies of scale which would enable greater risk diversification.
  • Collective action in the form of a Future Growth Fund, targeting up to £50bn, this private-sector led fund could provide a new source of investment into industries such as fintech, biotech, life sciences and green technology.
  • Underpinning these is the need for greater education and engagement about investing in unlisted asset classes, especially in private equity.

Lord Mayor, Nicholas Lyons said: 

“The UK has the second largest pension fund pot in the world, but UK pension funds invest less in private equity and infrastructure than our competitors. We’re missing a trick here – which is leading to the majority of UK pension funds and their scheme members not benefitting from these high growth investment opportunities.

Reforming pension rules across DC pension schemes, addressing regulatory barriers and creating a Future Growth Fund could unlock investment in tech and be a powerful catalyst for change.”

Axe Ali, UK Private Equity and Venture Capital Partner at EY, said:

“The UK is home to some of the most impressive high-growth tech firms in the world, yet they currently face a funding gap. By unlocking the opportunity from defined contribution (DC) pension funds and providing these firms with access to new avenues of capital could be a game changer.

“A new Future Growth Fund could help support tech firms with an injection of much-needed capital, whilst also providing a boost to the UK economy. It will of course require collaboration between the financial sector, regulators, and high-growth firms, and we, alongside the City of London and Innovate Finance, are excited to see how it develops.”

Janine Hirt, CEO at Innovate Finance said:                                                                       

“Innovate Finance is delighted to be working with the City of London Corporation and the Lord Mayor on this important report prepared by Ernst & Young on mobilising DC pension funds to invest in Growth Capital. As the independent industry body for UK FinTech, Innovate Finance has continually promoted the benefits and attractiveness of investing into FinTech, and highlighted the Growth Capital gap as a critical obstacle to the continued growth of the sector. Much good work has already been done to progress the issues faced by DC pension funds when considering Growth Capital, and the momentum is clear.  Innovate Finance fully supports this initiative by the City of London and the Lord Mayor to bring this ambition to reality.”