Getting more Britons to understand how to invest in private markets is like “helping someone into a swimming pool”.
This was according to Richard Court, head of VCTs and EIS for Octopus Ventures.
Speaking at a panel session at Octopus Live in the Capital, moderated by Tim Dickens, head of investment specialists for Octopus Investments, Court drew on the analogy to urge advisers to consider diversifying portfolios with private market investments.
He said: “In a world where the traditional route of filling up your pension as much as possible has come into question, people want to look elsewhere.
“How do you replace that tax-efficient investing you used to get through chunky pension contributions, and how can you support the growth of the uk and invest in innovation while doing so?”
The answer, for him, was to consider VCTs and EIS.
Court added: “It is a bit like helping a new swimmer jump into a swimming pool.
“While it might feel daunting, there are protections in place (such as armbands and lifeguards) to help reduce the risks involved, via portfolio diversification and attractive tax breaks.”
Also diving into the conversation was fellow panellist Sarah Adams, policy director at the British Venture Capital Association.
She said it was important to encourage more pension investments into UK private markets.
Adams told delegates: “We want to encourage more pension investments into the UK private markets.
“The US is a bit of an outlier: a lot of investment flows in the UK are from overseas pension schemes, where overseas pension investors are reaping the rewards of relatively long-term returns from UK investments.”
She said UK pension schemes and members would benefit from that sort of investment into UK private markets.
Adams added: “It gives people the opportunity to be invested into the companies of the future.
“It is a really exciting opportunity to allow that money to go into UK companies, whether university spin-offs in the field of technology, or companies that are positioning the UK for a more sustainable world – this makes it really exciting.”
She highlighted that such innovative and cutting-edge companies were important for the growth and development of the UK, and to meet policy objectives, such as the shift to net zero or improving the country’s defence technology.
The panel were asked what the government and regulators thought about driving flows of money into private markets.
Indeed, as reported previously by FT Adviser, the Mansion House agreement saw 17 of the UK’s largest pension funds pledge 10 per cent of default and DB funds to private markets by 2030.
While it might feel daunting, there are protections in place
Adams said: “The government and regulators are of course conscious of the need for consumer protection, but it is always important to have diversification in portfolios.
Court added: “It is important to build clients’ awareness of what the opportunities are, and how to go about accessing such companies, whether directly or through a VCT or EIS.
“And because of the maturity of the market, there are different entry points for different investors, based on their tolerance for risk.”
Adams said the government should do more to consider the limits on how much can be invested in VCTs and EIS, and to call for change in the limits, particularly for knowledge-intensive companies.
