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The British Business Bank & Your Pension - an Acorn or Unicorn?

Writer's picture: Greg HeathGreg Heath

So, the British Business Bank is out here, with its goal of driving sustainability and prosperity across the UK by waving the flag for venture capital (VC) investments, claiming they can outshine those boring old index funds.


Now it turns out they want a slice of your pension pie to help fuel this startup frenzy. Sounds like a win-win, right? Well, let's pump the brakes for a second and take a closer look at what's really going on here.


The Risk-Reward Mirage

Anyone that has worked with me knows my pet hobby is understanding risks, especially investment risks.


Venture capitalists love to talk about the potential for sky-high returns. Sure, if you bet on the next Amazon or Google, you'll be sitting pretty. But here’s the reality check: for every unicorn, there’s a herd of startups that flop. Ask any successful business owner. The success stories are few and far between, and it’s not just about “kissing a lot of frogs”—you might end up drowning in a swamp of failed investments.


The article above suggests that VC investments could be a useful component of a pension portfolio, even for mass-market investors. Really? Let’s not forget that we’re talking about early-stage companies—the riskiest of the risky. Sure, a small allocation might theoretically improve portfolio performance, but let’s be honest, the actual impact will be marginal at best. It’s more of a PR play, riding the wave of government rhetoric to support homegrown startups, rather than a solid investment strategy for the masses.


The Cost of Chasing Unicorns

Then there's the price tag. VC funds aren't cheap. In fact quite the opposite. The fees are typically eye-watering, with the standard "2 and 20" (2% management fee and 20% of the profits) model. Compare that to the near-zero costs of index funds (where the average pension fund is invested), and you start to wonder who's really benefiting here. Spoiler alert: it’s not the pension scheme members - ie; you!


The article glosses over the fact that these high fees can significantly eat into any potential returns. And let’s be clear, these fees are charged whether or not the fund performs well. It’s like paying premium prices for a lottery ticket where most of the numbers are missing. And let’s not even get started on the ongoing costs and performance fees at the point of asset sale. It seems more like a strategy to boost assets under management for the fund managers, rather than a genuine attempt to bolster pension fund performance.


A Play on Politics

Of course, there’s a nice sprinkling of political spin here too. The government's all for pumping more capital into startups to keep them in the UK, and hey, what better way than using your pension to do it? It’s a noble cause, no doubt, but let’s not kid ourselves—it’s more about optics than practicality.


The truth is, the average retail investor or pension scheme member probably won’t fully grasp the risk dynamics or the true cost of these investments. And why should they? That’s what trustees and advisers are for, right? But even they should be wary. Just because something looks good on paper doesn’t mean it’s suitable for the average persons retirement pot.


Bottom Line: Tread Carefully

So, while the idea of adding a dash of VC to your pension portfolio might sound exciting, it’s essential to question its real value and take advice on the risks if you fell they might be suitable. The potential rewards are enticing, but the risks and costs are far from trivial.





Let’s be honest, for the average pension fund, the return difference after including a sliver of VC will be marginal. If anything, it’s more about making fund managers richer while giving a nod to political agendas than genuinely improving the financial future of everyday investors.


My view; proceed with caution, and remember—sometimes the best way to win is not to play the game at all.


 


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