By Melanie Tringham, Financial Times Advisor
Natwest Cushon is to become the first pension provider to allow regular default fund savers access to venture capital funds, through the £2.2bn Cushon master trust.
Typically VC investors have to commit capital at the outset to a venture fund that closes, preventing further access, but Cushon will permit regular savers to invest through a whole of life unit-linked fund, set up by Mobius Life.
This will allocate to funds run by Future Planet Capital, and the Future Growth Fund, which is soon to be launched by the British Business Bank, buying small stakes of mainly British companies at growth stage.
Douglas Hansen-Luke, executive chairman and co-founder of Future Planet said: “Venture capital has a different pay-off ratio to private equity. PE is lower risk and fewer failures, but it doesn’t have the outsize returns.
“We are looking at up to 10 per cent of our portfolio returning two, three, 10 times what we originally invested. Even across the portfolio, your better VC funds will show a return of two/three times your money every ten years.
“40-50 per cent of your portfolio will do nothing at all.”
He said the managers would benchmark their investments against companies coming out of the top centres of innovation, and that they would be investing alongside big name investors in the VC world such as Sequoia.
“Foreigners are already piling in here. About £16bn was invested in venture last year alone, and we’re the third largest venture market in the world. 86 per cent of the investment is coming from overseas investors.”
Hansen-Luke expects to hold the companies for five to seven years, and exit them via a trade sale, IPO or sale to another investment fund.
There will be quarterly valuations, and the fund will enable quarterly liquidity. Savers will invest and have a lock-period that could be as long as 10 years, but will be able to cash out when they come to retire.
This will be managed because Cushon will have more people paying in monthly than retiring.
Cushon has not said how much of its fund it will be allocating to venture, or the fees, but they are below the typical 2 per cent for private markets funds.
The announcement comes alongside news that Aegon has also committed to investing in a growth fund, as part of the British Growth Partnership.