Across Europe, pension funds manage over €3tn in assets, yet only roughly 0.12% is allocated to venture and growth capital (VC). Meanwhile, VC investment in Europe totalled €15bn in 2023. These numbers together highlight two persistent questions: can allocation to VC be compatible with the fiduciary duties of pension funds? If so, why has the historical aggregated allocation of pension funds to this asset class been so modest?

To address these questions, we embarked on a journey to engage with pension funds across Europe (including the UK) and other industry members, such as asset managers, trustees, investment consultants, insurance companies, VC firms and VC associations. Our goal was to understand regional differences in approaches to venture, including sustainability considerations, the main constraints for further allocation and the investment case for pension funds that have chosen to allocate to this asset class. With recent industry initiatives aiming to channel institutional capital toward innovation (notably the Mansion House Accord in the UK and the Tibi Initiative in France), we wanted to identify the drivers and showcase diverse experiences across countries.

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DATA COLLECTION
The findings of this report are based on 50 interviews and conversations conducted with industry representatives, including pension funds, asset managers, investment consultants, trustees, scholars and VC firms. We also gathered information from official publications and secondary literature to provide readers with additional context.

FINDINGS

• VC/growth funds as a sleeve of private equity (PE) – rather than treating VC as a standalone asset class, many pension funds include it in their broader PE mandates.
• Return expectations – the promise of double-digit returns is a big part of VC’s appeal to pension funds. Still, they seek risk-adjusted performance that supports their long-term commitments to beneficiaries.
• Preference for later-stage investments – early-stage startups are often less attractive to pension funds due to their high failure rates and lower liquidity. To help manage risk, pension funds tend to favour funds of funds (FoFs) or later-stage investments in growth funds.
• Investment vehicles – pension funds generally prefer to invest through or alongside funds, such as FoFs, co-investments or external managers..
• Manager capabilities – performance track record and portfolio diversification are widely cited as the main criteria for VC manager selection.

This report is not intended to be a financial promotion. To the extent that anything in it constitutes a financial promotion it is exempt from the general prohibition in s21 of FSMA on the basis that the report is intended solely for investment professionals as such term is defined in s19 of the Financial Promotions Order. Please note that nothing in this report is intended to constitute an investment recommendation or advice. Anyone who is not an investment professional may not rely on the contents of this report in any way. Pensions for Purpose does not provide consultancy services, advice or personal recommendation on any of the investment opportunities mentioned in this research or engage in any investment activity. We collaborate on research projects with our members, we do not endorse any underlying funds.

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