The UK has a reputation for innovation, with world-class universities generating ideas, talent, and research that can create global businesses. However, many high-growth companies have been held back by a lack of access to long-term, patient capital to scale domestically.
Railpen, which manages around £36bn in assets on behalf of more than 350,000 members, is one of the driving forces behind a new £1bn-plus Scale-up Fund, supported by other pension funds and the UK government through the British Business Bank and the Office for Investment.
Addressing the Funding Gap
The initiative is still being finalized, but months of work have gone into aligning objectives, identifying challenges, and designing a structure that can achieve its ambitions without compromising either pension fund members’ interests or value for taxpayers.
Railpen has been advocating for a dedicated Scale-up Fund since last year, recognizing the potential for high-growth companies to deliver strong returns and diversification benefits for its members.
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The UK evidence is compelling, with private capital delivering annual returns around 55% higher than the FTSE All Share since 2006, according to UK Private Capital.
Investing in Innovation
For long-term investors like Railpen, investing in high-growth companies offers an attractive combination of return potential, liquidity characteristics, and portfolio diversification benefits.
Private markets are inherently less liquid than public markets, but for long-term investors with liabilities measured in decades, this illiquidity can be an advantage, aligning with long-term obligations and offering the potential for an illiquidity premium.
Railpen’s primary responsibility is to deliver strong retirement outcomes for its members, and any allocation to innovation must demonstrate the potential to enhance portfolio performance on a risk-adjusted basis.
“A well-designed innovation ecosystem allows each participant to fulfil its core purpose without compromise… The goal is not to trade off one objective against another, but to create conditions in which all can succeed together.”
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Supporting Scale-up Businesses
Investments in scaling businesses should be viewed within the context of a broader portfolio, providing diversification benefits and reducing reliance on traditional market factors.
Long-term investors like pension funds must focus on identifying and supporting the right companies, building a well-disciplined, well-connected ecosystem to identify, finance, and nurture high-growth businesses with genuine long-term potential.
Fast-growing companies require support at multiple stages of development, from university research laboratories to public markets.
The creation of the £1bn-plus Scale-up Fund is a bold collaboration that can accelerate the UK’s innovation economy, and Railpen is committed to investing in high-growth UK companies on behalf of its members.
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