That is good for the country’s startups and savers
Just such a push is now under way. On July 10th, Jeremy Hunt, the chancellor of the exchequer, announced the “Mansion House Compact”. The agreement commits nine large investment outfits to allocate a much bigger chunk of pension savings to shares of unlisted firms. Together, the group oversees two-thirds of Britain’s defined-contribution pension schemes—by far the most common form of workplace pension, with assets set to grow to £1trn by the end of this decade.
Will it work? Daniel Mahony, chair of the BioIndustry Association, a trade body for life-sciences and biotech firms, thinks it will certainly be a boon for his sector. He estimates its need for growth capital at some £10bn-12bn, “very, very little” of which currently comes from British investors. Startups can attract funding from foreign investors, especially Americans, but big equity cheques from such backers are the exception rather than the norm.
Innovative firms must therefore crimp their ambitions. Running drug trials is expensive, says Dr Mahony, and “if you know you can’t raise £100m, you don’t make a business plan that needs it. You make one that needs £25m.” If even a small proportion of the growth capital biotech firms need could be raised domestically, that might help “crowd in” more foreign investment as well.
Savers, too, stand to benefit. Next to peers, Britain’s look like outliers in their inability to share in the growth of private companies. Mr Hunt’s speech cited the 5-6% of Australianfunds invested in unlisted shares; many in the City point to the bizarre spectacle of Canadian pension funds being more exposed to high-growth British businesses than British pensioners are. Even a small change to that is likely to have big benefits.
It is also not out of the question that the London Stock Exchange could, eventually, get a boost. Dr Mahony describes a recent gathering of City grandees, to discuss how to rejuvenate Britain’s capital markets. “It was the first time I’d been in a room full of people not just whingeing about the problem in a British way, but actually putting solutions on the table,” he says.
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