The British Business Bank is perhaps not well-known in the adviser community, but it currently stands as the largest domestic investor in venture capital and early stage companies in the UK.
It has a portfolio worth £3.9bn through the investment vehicles of VC funds' equity stakes, direct investment and debt programmes, including small loans to start-ups.
And now, according to its chief executive Louis Taylor, it is planning to launch its own fund to access pension funds – investment of which there is much talk – and use pension money to support British early stage companies and get some uplift for UK pension funds.
There is a view in government circles that in the race for ever-cheaper fees, pension fund managers have steered away from riskier, more expensive asset classes, and stayed in trackers.
But this has depressed performance, and now the pressure is to move away from price and deliver value, especially in the current defined contribution world, where performance is no longer an issue for employers.
Taylor says: "We are good [at scaling up businesses] but we could be so much better. If you look at the amount of money that the UK companies raise at the different stages of development, versus the US, by the time they get to round four, five, six, that can be three times what the UK can be raising.
"We want to increase the amount of money available to companies, so they grow a lot faster."
The BBB is a government-owned development bank, whose shareholder is business secretary Jonathan Reynolds. It employs around 150 investment professionals, many of whom are experienced at due diligence in VC investing, and have largely come from the private sector.
With VC funds, the BBB is typically approached by a fund manager in the private sector with a request for funding, and once they are on board, that convinces other external investors to join, although the BBB needs some convincing that the external investors are keen to start with.
With this fund, which is in the middle of construction at present, it would be the BBB's own fund, and they would put some of their money (it has a permanent capital base of £7bn), and they plan to pitch it to institutional investors, for allocation from the pension funds that they run.
"We've been doing a lot of work on market engagement. We believe the appetite is cross-political – everyone wants more investment by institutions. So far the new government seems very supportive.
"[As for the institutions], they're increasingly open; in the past month L&G, Schroders and Phoenix have been announcing new vehicles to invest in a range of private assets. These private market assets offer the opportunity of better returns – that's recognised by master trusts, even the smaller schemes.
"UK institutions are not investing in this part of the market. The VC ecosystem is one of the top three in the world. Our ability to commercialise it is held back by the availability of capital. The potential is something that can be captured by pension funds."
