Britain Allocates $64B In Pension Funds For Tech Startups In Bid To Become The Next Silicon Valley

With economies around the globe continuing to suffer along at a slow pace, governments are thinking outside the box to find a solution. 

This includes the U.K. government, which recently announced an agreement with the country's largest defined contribution pension. With this deal, 5% of assets in its default funds are expected to be attributed to unlisted equities over the next seven years. 

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The Details

In a strategic move to bolster the U.K.'s economic growth and tech appeal, Finance Minister Jeremy Hunt has unveiled a set of reforms to unlock billions in pension funds for investment into early-stage startups. 

The anticipated effect would boost pensioner returns by approximately £1,000 ($1,283) annually via long-term investments in private startups.

The backbone of these measures is an agreement from major defined contribution pension providers to allocate 5% of their default fund assets to unlisted equities by 2030. This action could potentially release up to £50 billion ($64 billion) for investment in high-growth firms, should other defined contribution pension schemes follow the lead.

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Hunt suggests that average pension pots could see up to a 12% increase by engaging defined contribution pension schemes in more effective investments. Considering the U.K. holds Europe's largest pension market, valued at over £2.5 trillion, the potential impact is significant.

Hunt aims for the U.K. to become the next global hub for technology and innovation, akin to Silicon Valley. He emphasized the importance of blending the talents of financiers, entrepreneurs and scientists to lead in artificial intelligence (AI) safety and the use of other new technologies.

The new framework also promises to enhance investor security, business capital availability and maintain the best talent in the U.K. An additional feature of the reform includes an "intermittent trading venue," enabling public market investors to trade shares in unlisted firms, offering privately traded companies an alternative capital-raising avenue to public listings.

It'll be interesting to see how this plan shakes out over the next few years as well as whether any other governments take a similar approach. 

The Rise of Startup Investing

Startup investing has become increasingly prominent in recent years. 2021 saw a record number of venture capital invested in startups. And retail investors have even begun investing millions in early stage companies through platforms like StartEngine and Wefunder. Collectively, retail investors are investing over $300 million in startups through equity crowdfunding. For example, StartEngine has raised over $15 million this year alone.

While there are downsides to the approach, it can be a lucrative diversification option for those with the time and resources to get started.

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