It is acknowledged that venture capital and growth equity investment to become viable on a mass scale for defined contribution schemes, access to the asset class needs to be improved. With defined contribution schemes currently only investing a small amount in alternative assets such as venture capital, the conclusion is reached that pension savers may be missing out on opportunities for better returns. However, it argues that many of the most innovative and highest growth companies are not publicly listed but instead receive their funding from private venture capital and growth equity funds. It is too often the case, the report highlights that defined contribution pension schemes invest in listed assets, such as equities and bonds, and passive strategies, which are easier and cheaper to manage and trade. The report suggests a 35-year old with £25,000 currently invested in retirement savings could see a 6-10% increase in their lifetime retirement savings and a 45-year old with a £50,000 pension pot could see a 6-7% increase.
Even for older workers, the potential increase in returns could be significant. The report concludes that defined contribution investment in venture capital and growth equity may be especially important for younger savers in their twenties, whose long-term saving horizon may allow them to benefit most.
The report provides an assessment on the case for defined contribution pension scheme investment in venture capital and growth equity, identifies the key risks and challenges to access, and proposes potential solutions to overcome these.
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