Four persistent myths potentially prevent UK pension funds from accessing one of the most dynamic parts of private markets.
Venture capital (VC) has long been associated with Silicon Valley startups, headline-grabbing unicorns, and the occasional spectacular failure. For many UK pension funds – particularly DC schemes and LGPS – that reputation has often been enough to keep the asset class at arm’s length.
Harry Raikes, head of UK venture investments at Schroders Capital, and Joanne Bugg, head of manager selection at Future Growth Capital, argue that misconceptions about VC are preventing UK pension schemes from accessing one of the most dynamic corners of private markets.
According Raikes, the reality of VC today is very different from the myths that dominate the conversation.
Adds Bugg: “Too often venture is dismissed as a risky, opaque asset class that doesn’t deliver consistent outcomes. In truth, it can play a critical role in portfolios, offering exposure to secular trends, diversification and the potential for outsized returns.”
Raikes and Bugg will be speaking at Longview Networks’ Institutional Venture & Growth Forum at the London Stock Exchange on 24 September.
They identify four myths that need busting if UK pensions are to allocate meaningfully to VC.
Myth 1: Venture capital is just high-risk financing of startups
The image of venture as little more than speculative financing for entrepreneurs is outdated, Raikes argues. While venture does back young companies, it is about far more than simply providing capital to startups.
“Venture is about financing the visions of founders and turning innovation into real-world impact,” he says. “It’s about investing early in category-defining companies and gaining exposure to long-term secular trends such as AI, mobile technology and the internet – forces that have reshaped entire industries.”
VC therefore is not a gamble on untested ideas but a way of accessing transformative innovation before it becomes mainstream.
Myth 2: VC is too risky to deliver consistent returns
The second misconception is that the inherent risks of backing young companies mean VC cannot deliver reliable performance. Raikes points out that while the “power law” dynamic of the asset class is real – a small number of companies generate the majority of returns – the data shows that top-quartile funds have consistently outperformed.
“There is wide return dispersion between the best and worst managers,” Bugg notes. “But across our analysis, venture has shown the ability to deliver consistent returns and provide the potential for outsized performance that exceeds many other areas of private markets.”
For investors, the key is access to the right managers with the track record and experience to navigate risk and identify winners.
Myth 3: Venture investing only makes sense in the US
It is true that the US is the birthplace of modern VC. But Raikes argues that investors who overlook opportunities elsewhere – particularly in the UK – risk missing out.
“The UK is the third-largest venture market globally and the largest in Europe,” Raikes says. “The UK has created more than 50 unicorns, and London is a world-class innovation hub. But, too often, the returns from those companies flow back to US institutions that backed the funds investing here.”
For Raikes, the challenge is to ensure UK institutions participate in that value creation, rather than leaving it to overseas capital. “This market is producing strong returns, but domestic institutions are not yet taking full advantage.”
Myth 4: Success in VC comes down to luck
Bugg rejects the idea that VC is little more than a game of chance. Success, she argues, is built on four key pillars: access, experience, perspective and trust.
“Access is fundamental – you need to be in the small group of managers who can get into the best deals,” she explains. “Experience is essential to navigate return dispersion and avoid the hype that often surrounds the sector. A global perspective matters too, so you can assess innovation across different stages and geographies.
“And finally, trust. VC is a long-term partnership with entrepreneurs, and you need to be the investor they want alongside them.”
The role of UK pensions
With the Mansion House Accord pushing for greater investment in illiquid assets, VC could become a bigger part of UK pension portfolios. Schroders Capital recently raised its UK Innovation LTAF, one of the largest vehicles dedicated to UK VC, backed by the British Business Bank and Phoenix Group via their joint venture, Future Growth Capital.
“It’s still early days, particularly in DC,” Raikes says. “But there’s been real momentum since the Accord. The opportunity is there for UK institutions to access venture in a meaningful way.”
The question of whether there are enough opportunities to absorb significant pension allocations is one Bugg hears often. Her answer is yes – with caveats. “There are plenty of opportunities, but it has to be done in a measured way,” she cautions. “Returns depend on access to the right managers and the right deals. Get that right, and the timing for UK institutions is compelling.”
For Raikes, VC is not about hype or blind risk-taking. It is about disciplined access to innovation that shapes the economy of the future. Busting the myths that hold pensions back is, he believes, the first step toward unlocking that opportunity.
Raikes and Bugg will be speaking at Longview Networks’ Institutional Venture & Growth Forum at the London Stock Exchange on 24 September.