Directing just 1% of pension fund portfolios to venture capital (VC) could “unleash tens of billions” worth of investment in “breakthrough growth” companies, according to a new report.
Research by Pensions for Purpose and European Women in VC has laid out how UK and European pension funds currently allocate to venture capital. While asset owners are often keen to access the asset class, a lack of internal expertise and intensive due diligence requirements were barriers.
Rachel Reeves, the chancellor, has backed the report and called for pension funds to “transform… from passive investors into active builders of our economy: fuelling innovation, creating jobs, and unlocking stronger returns for savers while ensuring more capital also flows to the innovators too often overlooked”.
“By unlocking institutional capital and backing more women-led and diverse businesses, we can deliver growth that is both more dynamic and more inclusive.”
Rachel Reeves
“By unlocking institutional capital and backing more women-led and diverse businesses, we can deliver growth that is both more dynamic and more inclusive,” Reeves said. “In doing so, we secure prosperity for tomorrow while providing security in retirement for today’s savers.”
The report argued that pension schemes should look to build internal capabilities and to partner with existing venture capital managers to access opportunities.
“Pension funds have the chance to help savers benefit from the value created by European innovation, while supporting long-term economic renewal,” the report stated.
UK and European pension funds hold roughly €3trn (£2.6trn) in total, the report said, but just 0.12% of this is invested in venture capital.
“With the right tools, clearer fiduciary guidance, stronger internal capabilities, and well-designed investment vehicles, pension funds can unlock billions for Europe’s innovation economy while delivering on their core mission: long-term retirement security,” the report said.
Karen Shackleton, chair and founder of Pensions for Purpose, said: “There’s a narrative that pension funds perceive venture capital to be too risky. But our research shows a more nuanced picture: they’re exploring the right structures, learning from peers and preparing to allocate more – it’s just happening quietly, behind the scenes.”
“With the right frameworks, venture is not just an ‘alternative’ but a source of diversification, resilient returns and long-term impact.”
Kinga Stanisławska, European Women in VC
Kinga Stanisławska, founder of European Women in VC, said there was a “major opportunity” for pension funds to allocate to venture capital at various levels of risk.
“With the right frameworks, venture is not just an ‘alternative’ but a source of diversification, resilient returns and long-term impact,” Stanisławska added. “By connecting patient pension capital with Europe’s innovators, we unlock a true win-win: secure retirements for members and the growth Europe needs to stay competitive.”
Which region’s pension schemes allocate the most to VC?
| Region | VC allocation |
|---|---|
| UK | $4.05bn (£3bn) |
| Nordics (Denmark, Finland, Iceland, Norway, Sweden) | $400m |
| France, Belgium, Netherlands, Luxembourg | £200m |
| Germany, Austria, Switzerland | $130m |
| Southern and Central Europe, including Italy, Spain, Poland | $30m |
The UK’s pension schemes allocate the most in nominal terms to venture capital, according to the Pensions for Purpose report. The estimated £3bn allocation is equivalent to around 0.5% of total assets, but the Mansion House Compact and Accord are expected to boost this.
Nordic pension funds allocate proportionally more to venture capital and are significant supporters of domestic businesses, while institutions in southern and central Europe are often constrained by regulation or capacity.
