In the US, through the 401k, there’s a habit of direct investment for pension provision. In the UK most of our pensions are held by huge pension funds who are risk-averse…:
[…] “The pension funds quite evidently have large amounts of capital,” said Stephen Welton, chief executive of BGF, which invests in small companies. “We need to make a compelling case that part of their asset allocation should be to support growth companies. It won’t take much to make a profound difference.”
In America, 98% of venture capital firms’ funds come from institutions such as pension and insurance companies. Some big players, such as the California Public Employees’ Retirement System, invest directly in smaller companies.
It is rare for that to happen in Britain because of a “negative feedback loop”, according to a Treasury report published last year. A record of historically low returns, a dearth of skilled investors and relatively few public listings mean backing small companies is seen as riskier here than it is in America. Some fund managers — such as Legal & General, which runs a smaller companies trust — have started but not many have followed. A cultural shift is needed. Experts say the biggest opportunity lies in tapping into defined contribution pension schemes, which are forecast to have £1 trillion of assets under management by 2025. […]