E461 | This Week in European Tech with Dan, Mads & Chris Elphick

29:18But this is clearly a major problem. To lose a whole economy for a day, it's suggested that the Spanish economy will lose 0.3 % of economy growth just from that one day, which seems crazy. But don't forget, Spain is one of the fastest-growing economies in Europe at the moment. So if you're in startup, get into micro-generation, get into batteries, get into... Batteries. Get into any form of fault tolerance in the energy brigade. And I think you'll probably have a market for the next 10 years. Complex, complex startups, capital intensive, but it also, it goes back to battery where they need a lot of battery storage if we're going to rely on this type of technology.

29:49So Chris, I want to, I want to bounce back to you and I want to, I want you to tell us all of the secrets that you're not allowed to tell us. Everything that's going on, BBCA, government, behind the scenes, pension reform, what's happening because you've just recently launched, I think it was a couple of weeks ago, wasn't it? The Pensions and Private Capital Expert Panel Final Report. everything you can share maybe maybe start with a little history of you and the bbca so a bit of context and then and then and then the initiatives that you think are the most exciting and how they're going to affect venture capital and then and then obviously roll downhill into startups my background i've been at the bbca nine years and i always know that because i joined the day before brexit um so whatever that date was in may which is which is coming up uh will be my be my nine-year anniversary um so you know sort of job changed overnight but i was i was hired to create a venture capital map so you could sort of put in any constituency, any region, and it would show you all the venture-backed companies in that region or constituency, and we took it to show it to MP.

30:48So that was what I was sort of brought in to do as a consultant, and then I stayed on and I enjoyed it. And I worked across technical areas. I used to be head of tax, but always had worked on venture as well, and then sort of built up that side of the role over the time I've been here. and now, as you said, a fairly new role as head of venture capital. And I think because we're a sort of broad church organization in terms of private capital, we've got big private credit funds, private equity funds, all the way down to the big VC funds to microbes or first-time funds as well. So I think recognizing that obviously within that broad area of venture as well, there's quite a lot of policy and political engagement we need to do specifically for venture and making sure that that has a distinct voice and is understood in government.

31:36How many VC firms are there in the UK? In terms of how many are investing, there's hundreds. If you take all the overseas investors that are here, in terms of UK-based funds... I guess it's hard to delineate completely. We counted around 400 in 2022. We counted around 400. But you're right, I don't know what was originally, you know, whatever, US or Chinese or whatever. I think if UK funds is more like 300, it might have been 400 in 202. And it might have been some churn, shall we say. And that's managers. That's number of managers, right? Not a number of funds. Managers, yes. Not a number of funds.

32:12Sorry, firms. Firms. Yeah, firms. That's right. Yeah, yeah, yeah. So firms. So around 300 firms. Okay. So, yeah. So my job is to represent them to government, but also ensure that, you know, the UK is the best place to raise, manage a fund on a sort of technical side as well. So, you know, I work from the political side, but also talking to civil servants, regulators, etc. Just sort of either saying, you know, this bit of regulation doesn't work. Can you fix it or, you know, something more bigger? And this is where you need to deploy a lot of capital through the BBB or whatever. So, you know, so there's a lot in there.

32:47And I'm fortunate that, you know, I'm a sort of, you know, jack of all trades and, you know, typical kind of, you know, I like having lots of things to do and having a decent knowledge across all of those areas. But then at the BBCA, you know, we do we're quite a large team. I have, you know, reformed tax and regulatory lawyers who, you know, have now come and join the BBCA to do their bit. And, you know, they're the ones with the real expertise that I can sort of lean on. And, you know, because, you know, it's great talking to VCs and, you know, quite often their attitude is, can't we just get rid of all this regulation?

33:18Can't we just, you know, this is just ridiculous, you know. Doesn't sound like a VC at all. I don't know what you're talking about. I very much admire their optimism on these things a lot of the time. But being able to facilitate that through the actual detailed technical knowledge and understanding we have is incredibly helpful. And we have, as I said earlier, we have a very strong research team. And as I said, some of the other data sources you were saying, ours is smaller, but it's very representative and very accurate for what it is. So, yeah, so, you know, I think over the time I've been at the BBCA, our VC membership and VC itself has grown in those nine years massively.

34:00Nine years ago, the government, you know, venture capitalists, is that like Dragon's Den? I don't know. And I'd have to get my flip chart out. They still think the same. I can imagine. There are. I mean, they might not get it on a, you know, how a fund works type level. But there are civil servants now who do get it and have been in position for a few years, which is unusual. and I think it's because they quite enjoy the VC and tech and everything else, which is good. So we do have that kind of institutional knowledge within government, which is good to see. And, you know, I see, you know, I log on LinkedIn, I see a VC outside number 10 every other day going in.

34:34So, you know, the fact that we are now... Mads has been a couple of times, haven't you, Mads? You're nearly on the Reeves hotline, aren't you? It's good to see. Let's continue. Yeah, no, it's good to see. He's so coy. No, it's such an unusual experience, isn't it? sort of going in there and putting your phone in the pigeonhole and, you know, and all of the very grand old, you know, surroundings in there. And you realize how small it is. But yeah, but anyway, it's, you know, it's a good thing to see. And I'm very encouraged to see more and more VCs, you know, getting involved at that level and being on, you know, the government's Council for Science and Technology.

35:07Now, there's now always spaces for VCs. So, you know, over those nine years, the level of interest, the level of expertise we have has really taken off. So it's been really positive to see with obviously where the gaps are and where the, you know, where we need to do more. Obviously, we've already touched on some of those already. Scale up gap, the, you know, US pull, how we get more, you know, take advantage of the fact we have the best, you know, one of the best university ecosystems in the world. And how do we kind of, you know, how do we double down on that and actually get some economic benefit and not going elsewhere?

35:39And then, yeah, and then things on how we raise our money. Obviously, there's EIS and VCT, which is good on the sort of retail side. But then on the institution's growth capital on the sort of later stage, pensions is a sort of central part of that. So I'm happy to sort of go into that one first and then maybe cover some of the other areas. Yeah. First up, can you put the UK in context for us? So we talked about how many number of VCs. We talked a little bit about deal value. where do we fit in Europe especially because all the data that I look at suggests that the UK is still number one by by quite some distance but how would you put the UK in context with Europe and then the rest of the world yeah so yeah the government's favorite stat is yeah third largest bigger than France and Germany combined just about I think these days you know sort of I mean I it always you know I'm always obviously Trump you know bang the drum for UK venture but I still of myself as a European and want us to all be joined up along those lines as well, of course.

36:39But yeah, I mean, Brexit has created so many anomalies because obviously the fund managers are here, but they're quite often structured in Luxembourg or anything else. So you have all these slightly sort of strange sounding fund structures and things driven by all of this. So yeah, but in terms of the amount of investment the actual industry people represent here and all the advisors and everything else on top of that, we publish every year, just the economic impact of the, not the investments we make, but the industry itself across venture capital and private equity supports around 140 ,000 people.

37:11So, you know, not inconsiderable. So, you know, as a venture capital or a private capital ecosystem, we're, you know, we're a big player. Can I ask you a technical question, which is that a lot of VC funds in Europe and the UK are based in Luxembourg. That's because a lot of institutional limited partners who invest in funds are very used to and like to invest in Luxembourg for various reasons. It's the gold standard. If you have a UK manager who raises a big fund in Luxembourg and then deploys 80 % of that capital, let's say into the UK, because that's where their network is, it's the biggest market in Europe, etc.

37:45How is that booked in terms of the numbers that you talk about? Is that deemed to be a European fund because it's a European registered fund? Or how does that work? Is that just all taken into account and we shouldn't worry about anomalies in the data? My research team will probably tell me I got this wrong. We work with InvestEurope and others on a European data collective. So all of the data for Europe is shared across all jurisdictions. So I think we understand where. But if we take it as an FCA registered UK fund, they might have structured it through a Luxembourg holding company or whatever.

38:18It will still be registered as a UK fund. Because you're raising capital here, obviously, the investment coming here as well, that 80 % will still be registered in the UK. So we're not missing it from the data? No. No, no, because we have the full European picture through that platform. We can pick it all up. It is very blurry. I mean, 40 % of capital raised by European startups comes from outside of Europe. So they're quite blurry. It must be really, really hard for you and your research team to work out what's going where and how that network of cash actually operates. Chris, what initiatives?

38:51I know we've seen, I mean, I'm going back almost beyond Jeremy Hunt and prior. we've seen a number of government initiatives that have never really got any teeth. But what have you seen behind the scenes that you think is going to work? And then at some point, I really want to talk about the pension reforms and the latest report and what's happening with Mansion House. But what other initiatives or what is the total kind of pot of initiatives that are going to support our ecosystem? There are many, especially at the very early stage. I mean, we've got innovate uk ukri various pots of money um so they're the grants right that's the grants and you know sort of underpinning everything you have eis vct so tax advantaged uh schemes sort of driving a lot of the best you know and eis is staying for a while isn't it i mean there were lots of noises of old but eis is baked in for a while right so the sunset clause so baked into you know when we were in the eu you know anything that required sort of state aid approval had a 10 year sort of time horizon baked into it the sunset clause so that was renewed last year for another 10 years so so the the tax breaks get through is vct are are remaining till 2034 which is good so in the in the spring statement that uh the chancellor did say that they would host a series of round tables which we're going to join um later this month potentially looking at some of the limits on the schemes which haven't gone up you know with inflation over a number of years so there's there's scope there and i'm working with other trade bodies you know who who who who look after you know because the EIS isn't just funds it's also individual you know the investors themselves and angels and everything else about you know sort of some proposals we can put together to make some you know we're not asking them to sort of you know completely to take all the limits off but where you know where there are some anomalies especially from state aid and other areas where you know to make them a bit more generous to allow that journey along EIS and VCT to kind of go a bit further so yeah so there's some you know I don't think we were expecting that.

40:51We've got the sunset clause, now we've got that. So it's good we're looking at those schemes in the round, I think, and can maybe make them a bit better and more supportive to founders, which is good. The largest interface the government has is through the British Business Bank. Earlier this year, people will be familiar with British patient capital, British business investments, the various arms of the BBB. Now it's been brought under the BBB umbrella. The BBB, the programmes are the same, but it's now just British Business Bank. And as I said, in our data, they are the single largest LP. So you have venture funds, you have the enterprise capital fund program, which is a really good, I believe, superseded among those, which is a fan.

41:26And it's a really, you know, you look at even when the BBB publish their data on the returns data, it's a really successful program in terms of crowding in LP money, picking good managers. It's been phenomenally successful. It's a program that's been around for over 10 years and cornerstone. A lot of those funds, which are now very well established in the UK, started off as ECFs quite a while ago. So there's that. And then there's what were the British patient capital and BBI programs. You've got fund-to-fund programs and investments in larger funds. Again, we are hoping to get some... British Business Bank is amazing.

41:57People would sometimes say it's a bit slow or a bit bureaucratic, but it is a government arm. It's taxpayer money. So they take their time and that's to be understood. But it does unlock additional private capital from the UK and elsewhere, which is why it's so important and why it's still so needed yeah and again as part of the spending review i think they're looking at the bbb programs maybe giving it more money we're arguing for more flexibility within some of those programs you know so i know ecf and others is 100 uk maybe allowing you know uk fund managers to invest uh you know a small portion of in europe and elsewhere we think that's really important to kind of build up that expertise and and give you that great greater diversity some of the schemes you can fall between them so sometimes you know some fund managers have topped out at ecf they can only usually back one or two funds, but they're too small for BPC.

42:44So they lose their cornerstone investor. And there are very few UK LPs who will make a cornerstone investment in VC funds. They have to find it from elsewhere, usually in Europe or the US. And then they're no longer UK and they're moving elsewhere. So just allowing that sort of pipeline to sort of fix the gaps is something we're also pushing for and hopeful to get. So yeah, those are the main government programs. And it's encouraging to see through the last government and the current one that they are ring fencing money for tech and venture. So in the defence space, you've got... It feels like that.

43:17It feels like it's more than lip service. But I don't know what you're seeing from the inside. Are these embellishments and kind of augmentations of these schemes going to happen? Is the pension reform going to happen? Maybe we can start talking about the report and the feedback. Yes. So, yeah, I think one final area where I think the government now has established something quite useful is the NSIF, the National Security Strategic Investment Fund, which is sort of government CVC arm, you know, copied on what they do in the States. And that's been very successful. They've ring-fenced£400 million for defence.

43:52So again, so... And this is resilience, defence, cyber, all of those things that Trump has basically made front and centre for the UK and for Europe. Indeed. So the fact that, you know, defence spending is going up massively, but having that ring-fenced there and saying we want procurement processes to be much... You know, there's been like four companies who have last dominated tech defence, but actually getting tech, drones, all these sorts of things as part of that. So that's very encouraging. So the pension is one of those things where me and colleagues of mine have been chipping away at it for years.

44:24I mean, the UK pension system, which is the defined contribution pension system. I'll try and give a bit, we've had a switch basically in how the whole UK pension system has been structured over the last 30 years from defined benefit schemes, which are like pension funds, essentially, and then into defined contribution. And a large part of that was various scandals that happened 30 years ago, and a huge pensions deficit from the DB schemes where, you know, people living longer, etc, where, you know, there's a huge pensions gap. So in order to protect ourselves from being exposed to any further, you know, exposure to that, defined contribution schemes is effectively that people my age and younger will will pay you know a a single my pension will basically go into a single pot that is ring fence that that i have saved in that will hopefully grow as it's invested well which we'll come to over time and then i draw down i get an annuity from that when i retire so it's not just going into a big fund i you know i literally can log into my pension provider and see how much i've paid into it see how much has grown and that is what that is what i'll have to retire on because of that it becomes far more highly regulated because the managers of those individual pots of money they're literally managing things that's come out of my salary so you know the government has did put in uh protections around that you know for for good reasons i guess at the time given those scandals back back in the day you know in in the 90s db schemes were big backers of private capital when we go back into our data venture capital as well you know the big fund of funds that were around then were all were all db uk pension fund uh backs and then you know the dot-com bubble happened 2008 happened and then it all you know just just went away and dc has not stepped in as db because db's the defined benefit the old pension schemes have all closed off dc is now massively growing you know it'll be one trillion pounds aum by 2030 and will just continue to grow as you know everyone now has to pay into their defined contribution pension so that's just going to grow and grow and grow but they as of a few years ago had no private market exposure, venture, but even the biggest sort of private capital, private markets providers as well.

46:27I think going back, I'll give credit to my colleague, Tom Taylor, who did some really good work on this five years ago on the Productive Finance Working Group, which was not a very well-known Bank of England working group, which just sort of looked at this problem and said, why aren't UK pensions now deploying in private equity, venture capital, everything else? And basically gave a good set of recommendations as well, background as to why it is and what the recommendations are. So there's essentially what the government put in was a charge cap on the fees that DC schemes could invest in products that couldn't go above that cap, which was at 75 basis points.

47:03But when Boris Johnson was prime minister, actually, but I think it was more Rishi Sunak when he was chancellor, published a letter back in 2021 saying they intended to change that charge cap and there was a consultation on the charge cap itself the charge cap didn't go but it's now blended so you can have a you know a balanced strategy with private markets as long as you average out at 0.75 percent prior to that there was no point having the conversation there's no point i was going to pension team saying invest in our members because that charge cap was there yeah and the context there i guess is that if they're saying the cap is 0.75 percent fee annually it's market standard within venture for venture managers to charge two percent on the funds managed per year so there's a massive mismatch i guess if you're saying now if 0.75 is blended across everything because they're probably playing you know 25 basis points on some of their public markets funds so maybe it can be blended but i can see how that's a big big barrier until that's reformed yeah and those that when they made those reforms it did mean we could then start the conversation and then mansion house effectively happened off the back of that um two years ago once those reforms came through.

48:09Chris, just remind everyone what Mansion House is and what it was set up to do. So Mansion House is also the Lord Mayor's big house by the Bank of England, where every year we elect a Lord Mayor and there's a big Lord Mayor show. But because they are right at the heart of the City of London, they have the chance. He traditionally gives a speech there. That has always been the case. And it's usually more of a dry economic speech. But this one that the previous chancellor, Jeremy Hunt, gave was about pension reform and actually having a mansion house compact, which came out of that, where I think it was nine of the largest pension schemes in the UK said they would put 5 % of their underlying pension assets into private markets.

48:51I mean, you could see coming out of that the lack of understanding on both sides, really, because they called it unlisted equities, which we were like, I mean, that's a strange phrase to us when we're, you know, but that's because, as I said, you know, before that, they've just been going, you know, lower fee, completely liquid, you know, tight, low risk products for 30 years. That's where we've been told to go. Now we're saying, turn the oil tank around. Can you do this, you know, closed ended, higher fee products? Wasn't a lot of the pension capital going to the US? wasn't it going into put into us publics yes so they've had a bit of a rough time recently uh which is you know again it's which is i mean it's not good for me personally in my actual pension but it's a good point for us to say again look we were overexposed to this stuff going on in the us because we thought you know you know it's probably done all right recently but you know getting that mixed portfolio with some private assets with some private equity venture capital gives you that you know gives gives you that balance in terms of the returns and everything else so and for context that's still of sorry to interrupt it's still a very very low bar because if you look at most you know like portfolios take the us for example and some defined benefit schemes in the uk which have had a kind of longer history of building their strategies most of those they have a 20 to 25 allocation to privates right which it's not just venture venture capital will be a very small portion of that but that will be private equity infrastructure etc so So actually just saying 5 % in private, it's a very, very low.

50:17I mean, we've got to start somewhere, I guess. Yeah. And I think we're expecting another Mansion House speech later this year. And there's been some leaks to the press that that figure is going to increase. And that's good. I think for us, we want to make sure that the original Mansion House announcement did have a real focus on venture growth, innovative companies, high growth companies. And we want to make sure that's still very much the focus because we haven't, you know, we've made a lot of progress. I don't think we've sorted it entirely yet. And it's been very helpful. So when the original Mansion House speech that the Chancellor gave where this Mansion House compact was announced back in July 2023, I sat down with some people in Treasury and we said, OK, how do we turbocharge the venture and growth aspect of that unlisted equities, private markets bit of this, right?

51:02because we'd spoken to the Australian superannuation funds. They'd been on a similar journey 10, 15 years ago. I mean, slightly different type of funds. But they had also been asked to do more private market investing. And they'd started with big infrastructure, private equity. And it probably took them a few years, probably a decade, to develop a venture strategy as part of that, as their sort of private markets portfolio. So obviously, if that process happens in the UK, it's not going to get to the far high growth bit of the economy the government wants it to go to. So I sat down with Treasurer and we came up with the investment compacts for venture capital and growth equity, which was basically asking our members and even the wider VC and growth fund industry to sign up to a compact to say, and alongside the Imagine House compact to say, this is the private capital fund managers coming and saying, we are happy to enter the dialogue to make this work and bridge that massive knowledge gap that there was that existed two years ago.

52:05And we got over 100 signatories on there from very large, well-known funds and many, many others. It was included in the documents for the budget in 2023. The government really got behind it. We had the chancellor sort of speak at one of our events talking about the compact. So it had a lot of momentum behind it. And then we announced the Pensions and Private Capital Expert Panel, which you mentioned earlier, which was chaired by Kerry Baldwin of IQ Capital. So we had a VC chairing it, but it had trustees, chairs of master trusts, the pensions platforms, and other VCs and private capital representatives all meeting every month, a couple of months, sort of going through what the issues are, breaking down some of those barriers, explaining what 2in20 is, how this industry works, how other LPs get the best returns from it, right?

52:57because there's the whole thing around the fees, right? I think there was some sort of conversation, can you kind of meet us in the middle? Can you guys do sort of, you know, what? And it's like, not quite. And I remember that there was - Never split the difference. No, that's not really how it works. Two and 20 is established all over the world. You know, it's a very well-known and established framework. And it's because I think they were coming from a world where you're essentially, you know, someone said to one of my colleagues, all the admin fees in these venture capital funds are too high.

53:26so it's not an admin fee that's the thing because they're used to buying a sort of product which is you know much love it whereas it's like we had to explain a management fee is the business and this is why it's higher and obviously you know the the kind of um you know the joint relationship between you know the whole point they carried interest is they're explaining why that they'd sort of drive the returns the hurdle rate all that sort of i mean this is very basic stuff but that was you know that that sort of thing that we you know set out to them and uh over that we've produced well it we've produced two reports over that time and a lot of the on the technical side there the whole focus was on cost and we you know there have been changes to the value for money framework to then look at okay what's the actual return what's the value for money in terms of the cost versus the return and then you know we've had as i mentioned earlier ltafs these new products and i think when jeremy hunt set this up he was very much like you know i've given you the framework Look, now private industry go off and find the solutions to make this work.

54:22And I said there's been some progress there. And we are starting to see. I think in our data, in the sort of growth private equity side, there is a bit more pension investment. So it still hasn't worked its way down to venture yet. I guess the challenge, Chris, is urgency. So we have this little thing called AI happening. I know that being a VC, I'm going to have a very particular viewpoint. and I know there's no urgency for the Mansion House 9 or whatever that's going to become to make this happen tomorrow, but I need to get all Jerry Maguire on you and go, show me the money. Where's the money?

55:00How, where, when is this going to... What are the mechanics? How are we going to see this? What is going to happen? So, yeah, no, you're right. And it was partly my fault for dropping off all the interest in getting all these VCs to sign up to this compact and now they're like, okay, come on. so no I completely agree I think one of the positives we had from our expert panel final report which had as I said you know the pensions providers on it and the recommendations in there because now with the Labour government I think they're a bit you know a bit more pro being a bit more interventionist you know that's more that you know that they're happy to kind of you know step in and bring the big arm of government to try and try and help unlock this a bit faster so in there we had some big recommendations we essentially had something which was largely copied across from the French Tibby scheme.

55:43A very quick background of that is Professor Tibby in France got together with Macron and created this scheme where Macron eventually went round and told all the big institutions in France, can you invest through the scheme? And it's unlocked something like 20 billion euros into French, not just venture private equity. The French is doing it well. Exactly. In a very French way. I think we're usually a bit more reticent to do that sort of thing but yeah but you know so so we've called it the nova scheme you know i think i came up with a name for that which was new opportunities for venture and growth acceleration which you know uh i thought someone would come up with a better name but it hasn't so it's stuck but you know and i think now it's nice because for the last couple years we've been saying we need a uk tib we need you need a uk tib and now the conversation is you know nova how do we make nova work so sort of copying the lessons from from tibby given where we are with dc schemes that might take a couple of years to set up because it's essentially a kite mark kind of accreditation scheme you know run by the BBB or the government and others to kind of try and help get the matchmaking process going a bit faster.

56:41It has been happening, but just speeding up the process, but also kind of front loading that in order to get the money for you, Dan, and others faster through a fund of funds, sort of cornerstone by the government, because the British Business Bank has a British growth partnership where they do have some pension money. They're going to invest more direct to start with, again, I think largely because of that fee issue. That's a good thing. They're investing directly. So in order to get a fund of funds, have the government cornerstone invested in it, it could have some kind of, like I mentioned earlier, ECF arrangement where you can bring in the pension funds by the government taking more of the risk or paying more of the fee or whatever to get around some of those issues.

57:18But the pension money that were coming in will be more local government pension schemes and others like that who are, they are sort of DB type arrangements that don't have all of the issues you have with DC schemes, which still take a while to unpack around fees and everything else. When, Chris? So that, so, so, well, so that, so front end with the fund of funds, you could, you could reasonably do that in a year, I think. Okay. Okay. So anyway, these are our proposals. And, you know, I think we, we need to keep, keep onto the government with that say, obviously they're looking for growth. It's both the growth and the retirement outcomes, which in the UK.

57:54I feel for Labour, because if Labour do all these great initiatives and support and they're not going to see any of the benefits of this if they're out in three years time. I mean, this is something that's future-proofing the UK. And I always fear for this four-year mandate for MPs, where they're not going to get any of the upside of this at all. Yeah, it's kind of when you're looking to that four-year horizon, which is why we have sort of lack of long-term planning, which has been a bit of an issue in the UK. But I think something with that fund of funds, it's obviously not going to turn the dial up massively in terms of, you know, the underlying GDP and everything else.

58:27Well, you know, it'll have a small effect. will help sort of turbocharge that process. So, you know, I think it's, there is, Mansion House as well also, you know, will no doubt cover public markets. There's all of, you know, the UK pension schemes used to invest massively in UK public markets. They used to invest something like 20 odd percent. And now it's very, very, very low. Is it five? So it's changing, yeah, it's something like that. So, you know, I mean, I do feel a bit sorry for some of the pension schemes when you're going to see one and he's like, sorry, where do you want me to put my money today?

58:55You know, they're getting it from all angles kind of thing. But, you know, but it's very encouraging. that, you know, and we now have a new pensions minister, Torsten Bell, who's talking quite bullishly on this. So, you know, this agenda is going to stay and, you know, they're looking to do a lot more. So, yeah. So, I mean, in terms of, you know, we are seeing some deployment in VC, which is good. And we have got, we've put forward the ideas to turbochar. It started, there's more to come, but what I'm hearing is we still need some time. Yes, unfortunately. Although, Chris, I would just challenge you on one thing, sorry, just to say, it's like, Surely the whole point of this is that it actually does move the needle at the GDP level, right?

59:32I mean, it really does. Like if we're saying the investment in technology and venture into technology is a critical thing for future proofings, for example, the UK, isn't actually the whole point of this that it does move the needle at that level? But it's not just GDP, Lomax. I mean, this is employment. This is innovation. Which is all tied in. That's a sort of net output of that. I think it will. So when I said I was just talking about the fund of funds to set up in the next year on that level. But you're right. But then in terms of the GDP level, you need the public markets and everything else.

1:00:02It needs to be much wider than just what I'm talking about in the sort of venture area. Mads, you've been very quiet and I've not been able to bring you in because this has been super, super interesting. You've got some other thoughts and notes on this. What would you like to discuss? That's just a question for Chris, really. I mean, some really interesting headlines that have been out in the press recently sort of saying, look, Torsten Bell and Reeves are ready to legislate if they need to. So question for you, Chris, what do you think will happen here if you put your gambling hat on? Is the industry going to figure this out by themselves or are we going to need to see legislation to make it happen?

1:00:46Yeah, I mean, I can't speak for what they will do, but I think when, so last year, because now the UK pension schemes have to publish what they're allocating to private markets and everything else. And obviously that 5 % target last year was 0.36%. So I think government hands that they're going to need to do... But it's by 2030, isn't it, Chris? So it wasn't a pledge by 2030? 2030, but to go from 0.36 to 5%, you know... 0.36 versus 20, 25%, as you would have as normal in, for example, the US. It's pretty crazy, no? Yeah. So I think we'll see those figures increase as we've seen in the press. But yeah, I mean, I think there is a lot of debate around mandation that shouldn't be required.

1:01:25And plus, mandation might get some bad outcomes, right? Because if we say, oh, you have to put 0.1 % whatever into venture or whatever, they might just think, oh, okay, I'll just put it over there and forget about it. I want them to be upskilled to understand venture and private markets themselves so that they do it, you know, willingly and, you know, and take it seriously, build up the teams and, you know, invest like other LPs and really drive the, you know, finding the best managers and driving the returns for their pension savers. So, yeah, I mean, I think that that's a useful sort of stick to have behind your back to try and drive this forward.

1:01:59But, yeah, I don't think it will be that sort of full mandation yet and how you structure that. But yeah, I think some more of these initiatives like the type we've suggested would be very welcome. Well, it feels like the fee structure is the challenge because venture capital has been an extremely lucrative asset class for many, many years. Obviously problematic, sure, but it feels like it's the fee structure that is the main education and fee. Is that a fair question? And liquidity, right? You have rules and liquidity, right, that make it very, very hard for those funds to invest in. When we started on this, we kind of realized it's kind of everything.

1:02:32You were saying if you're creating an LP for venture, you know, scale, they want daily liquidity, daily pricing, you know, close-in venture funds. And if I've got optionality, and if I can then go, look, that's really difficult. This US public market stuff is really easy. I mean, what are you going to do? You're just going to take the easy option, I guess. But I think the work we've done and what the government has done, I think we've sold most of those, but the fees are still the main blocker, certainly. Where's the answer? What's the answer to the fee structure? You either get creative on the government side.

1:03:02Someone else has suggested this to me, but I sort of nicked it, was if the government said, not mandated, but said if all the pension providers had to get behind this private markets program like a NOVA scheme, they would then – because the problem is that a lot of them are – if we did a massive private markets program, our underlying fee costs to our members will go up, so we'll be less competitive, which is part of the problem. There's also the kind of consumer element to all of this as well, which needs to be understood. That's another reason why the fees are so low. No one's going to step out and start doing private markets in a massive way if they then become less competitive to the other pension providers.

1:03:37But if you get them all to do it, all of their fees will go up. And then they can then all charge the higher fees. That's one solution. But there are other suggestions about how you get around it. I mean, I guess ultimately it's us to make the case to say these fees are worth it because the returns are good. And we've got returns data going back 30 odd years and the returns data is very strong. That data has been available for decades. But now just making them aware of it and really driving that home. I don't think the stick works. I think you need three things here. I think you need to create the permissions.

1:04:06You need to actually loosen the legal system to make sure and the rules and regs to make this happen. That's exactly what happened in the US in the 70s, right? They changed the law in 1978 to make it easier. and I think pension investment in US venture went from say 1 billion to 2 to 300 billion to the point where it's now 20 to 25 % of the total sort of AUM of US venture. And for context, European venture, roughly 5 % pension funds. So if we're talking about unlocking more capital into our industry to drive more innovation, the sort of taking the pensions from 5 % constituent part to 20, 25 % is absolutely critical, right?

1:04:41But I'm not sure, Mads, I love your thinking that get a stick out or your question, but I'm not I don't think it works I think you need to first of all get rid of the hurdles secondly you need to upskill you need people who actually understand how to buy this product I think it's quite difficult to invest in venture funds I don't think a lot of people in pension pension funds really have that skill set so really invest in the education and demystify the product thirdly to be honest performance I thought we should all do better but we need to perform for example we're not competing just against we talk about competing against US venture which you know depending on what metrics you use, you know, we're kind of Europe is nearly there, not certainly not in the top 10 percentile of funds, but potentially on a pooled basis.

1:05:20But we need to compete against other assets, private equity. If you look at European versus European private equity versus European VC, like VC only slightly outperforms that, right? And if you look at the sort of problems you have with higher, like less liquidity that you have with venture, for example, that's the third piece of the puzzle. It's like both having the performance and showing and being seen to have that performance, I think, is critical. I think private equity has been far more innovative in terms of how it's structured, how it gives returns to its investors, as you say, and pension schemes looking at that.

1:05:54Yeah, I think venture needs to innovate as an asset class in order to unlock some of this pension money, I think. So, yeah, we'll see how that plays out as well. Mads, any other final thoughts before I let Chris off the hook? No, I think it's clear that there's a lot to do. I don't know that if it's obvious that regulation and changes to regulation won't be valuable or needed or can work. I absolutely think they could. Chris, you're right. We need to provide a good product to investors. They need to be open to having a conversation about what they want and what they want to see. And I don't know whether you have a lot of pension funds reaching out to you sort of saying, look, if only you can structure it like X, Y and Z, it'll work well for us.

1:06:36the starting point is you've got to cut the, as you say, admin fee from 2 % down to, I don't know, whatever, half a percent. Well, that's obviously an unstarter. Not because anybody's making growing fat off management fees, but because it's extremely expensive to run VC firms, right? Finding companies, working with founders, supporting them, helping them. It's a completely different model from sitting at your Bloomberg terminal and placing bets into public markets. So it takes more resource and that costs money. That's hopefully also what will give the outperformance that you can point to in the data you have.

1:07:09So I think everybody's going to give something. It does feel like we need to move a bit faster. My sense is that we may need some regulation for this to move. And you can think about some schemes quite easily, right? If the target is 5 % and the industry on average is on 0.3, well, you put a levy on anybody who has a laggard on that leaderboard, right? So if you hit your 5%, you pay nothing. And if you hit 0.3%, there's going to be some costs. You're going to have to fund something somewhere else to make up for that shortfall. Economic incentives, I think, could be part of solving this if folks don't figure it out by themselves.

1:07:45I hope they will, but it's moving very slowly. You also need to have qualifiers on geography. As Dan is saying, AI is happening right now. We don't have three, four years to sit around and figure this out. The capital is required right now. you also need to potentially put qualifiers on geography as well which i think is what rachel reeves has been saying it's like so we'll allocate to privates okay well private you know private equity infrastructure bc what about does it have to be in the uk what about going to the us and investing in us you know us vc funds for example yeah but then you're going to edge into the immigration conversation not neil max well no they're going to end into like a kind of like you know uh trade war kind of tariff like uk us trade deal if we're you know forcing our pension funds to only invest in, for example, UK venture funds, that it all gets in the mix of that kind of more geopolitical relationship.

1:08:35Oh my goodness. I feel like we've only just scratched the absolute surface of this, Chris. It's a fascinating topic. Just to close this one off, what should VCs do? What should LPs do? What should pension companies do? What is the next step? What is the future? How can we get involved? Or what's the next evolution of this scheme? So I think just from a BBCA level, the expert panel's finished, or its final report has been published, but that will continue in some kind of new form. So get involved in that. As I said, you can sign up to our compacts if you haven't done so, because we run a pensions private capital events.

1:09:19We do one at our summit, which is bringing pensions and not just venture, but also private equity funds together. So there's that. But then, yeah, I think just you will see that there are now several venture-focused LTAFs that have been launched. A couple of them are coming to our event. One of them is coming to our event next week. He's like, I just want to meet venture funds. So they're now being set up and they're there and they have money to deploy that they've been given. Are more coming? Are more being set up? I hope so. I mean, it's the Aviva, LNG, Phoenix and others at the moment. And there are some smaller players as well.

1:09:56And yeah, so yeah, I'm hopeful to see more set this out throughout this year. I mean, there are, they're being launched every week, but, you know, there are ones focused on climate, ESG, infrastructure, private equity. But there are, you know, there are a good number of VC focused ones. So I think, you know, you just need to Google it, find who they are. And I think they'll, you know, but yeah, and they all have very different strategies as well. So just identifying the right ones. As I said, I think it will take some time, but just getting that set up now. So when the dial really does move, which we're hoping that it will, you've got the relationship to then get in there and unlock some of this capital.

1:10:28Who's doing this well in Europe? Who can we, you know, copy their schemes? Who's doing this well? Yeah, so we've got it well. We're already suggesting that we copy the French, you know, the Tibi scheme. But in terms of pension, I mean, the State of European Tech report shows pretty low across Europe. some of the Nordic countries are pretty good. I was going to say, Chris, when I read one of the reports that we covered recently, I think it was the PitchBook report, said that in the top, or Tech Nation report, the top 10 LPs in UK venture last year, one of the top 10, it was the usual people of British Business Bank, et cetera.

1:11:04One of the top 10 was like the Norwegian State Pension Fund. It was the only pension fund in there, no UK pension fund. Well, they've got more money than God. No, no, it's not a sovereign wealth fund. It's their pension fund, which is, okay, fine but yes they have we last i think in the 2023 data we said there was a stat that we usually use every year and it's something like you know that year five swedish pension funds invested five six times more than uk ones did you know so so yeah so the i think that they are a good model um and the netherlands have a lot of pension money right and they're really trying to get that unlocked now at the moment you know there have been there have been similar to two sort of mansion house and and And previously, Tibby, I know Denmark have, Germany has its win initiative.

1:11:46There are several initiatives coming up like this now. Italy's waking up as well. I've seen a lot of Italian pension and government money starting to be talked about. I don't know what the reality is, but it sounds like my sense is there's some Italian moves afoot. We have gone way over time and I love you all dearly. Mads, I want to do a quick AI Corner and then your deal of the week if you're up for that. Yeah, so AI corner, I mean, there continue to be lots and lots of news on the AI side. But I thought really the highlights or headlines over the last few weeks were that Satya Nadella, he now says that 20 to 30 % of all code at Microsoft is AI generated.

1:12:29Sundar from Google says that 30 % of all code is AI generated. The Cursor team, we know, the amazing developer framework, they now say they've generated more than 1 billion lines of code every day through the app. It's just a staggering number. So it's happening, folks. We've only just started, right? It's coming. We've only just begun, which is super, super exciting. And so just switching quickly to deal of the week. I mean, we normally talk about tech deals, but I think there's sort of another deal that's been overshadowing everything here, which is this U.S.-Ukraine minerals deal that Trump finally believes he has clinched.

1:13:13And first, maybe unpack some of the gremlins a bit here. So Ukraine effectively cedes 50 % of future resource revenues to this joint fund that's being set up. And there are no security guarantees built into the agreement that was sort of a red line for Trump. Isn't it implicit, though, Matt? I always figure it's implicit because a lot of these minerals are in eastern Ukraine. So if they're going to set out, if there's going to be any kind of reformation, rebuild, mining companies, that's going to be a very, very tricky one for Trump and Putin. Well, not only that. So this is kind of where we come to what I think were some of the wins, some of the quite clever negotiation here from Zelensky.

1:13:53Trump, he'd previously insisted that all past US support should count towards investment under the deal. Trump, he believes that that's$350 billion. I think most of the rest of the world thinks it's closer to$100 billion. But whatever it is, it's a big number. And what Zelensky effectively managed to do was to carve all of that out of the deal. So that means that the only thing that will be counted as U.S. investment under the deal is future U.S. support, which means that for this deal to have any value for the U.S., the U.S. effectively needs to keep supporting Ukraine. So it seems like a major win on Zelensky's part.

1:14:34I think it's quite clever of him to stand firm. He was certainly being bullied. Was that against the territory piece? Was that like, well, ignore Crimea? Was that part of the territory deal? Or do we know? Well, I'm not even, no, I don't think Crimea is explicitly part of the deal here. I think this is just a sort of a minerals deal. But I think it's just interesting. They had this breakthrough, this conversation in the Vatican. And I actually think Solinsky has done some clever negotiation here. So, yeah, that's deal of the week for me. Wonderful. Lomax, quick deal of the week from you? A more down the fairway deal of the week in some respects.

1:15:09So Series A led by Index in defence. I think it's interesting, just as I mentioned before, you know, defence has been growing as a category. Now we're seeing, you know, Index. If every deal of the week isn't defence, I'll be very, very surprised. Well, yeah, but I guess this is the thing. It's like when you start to see the big generalist funds, you know, Index invests across everywhere in technology, apart from traditionally, you know, some deep tech companies, they're now investing in defence. And so it's a sign of the times. It's a Series A UK software company, pre-seed led by a couple of friends of ours at Creative Fund and Concept Ventures.

1:15:41And yeah, interesting to see. And, you know, it's a sign of the times for sure. Chris, what's happening for you this week? What's on your agenda? More government lobbying, more smart pension house reforms? Yes, indeed. That never stops. yeah as I said we've got our VC conference next Thursday so making sure that you know we can we can we put the minister on the spot and see what we can get out of them and then uh yeah and then I'm actually I'm planning I'm going on some shared parental leave in June, July and August to spend time with my young son so oh getting ready for that getting new babies this is my second so yes so he's he's he's eight months old and I'll yeah I'll have him for the his the final three months before he goes to nursery.

1:16:22I'm not sure we're allowed to let you go. I think we're going to have to wheel you into number 10. What about the pension money? Come on, come on, Chris. We'll have to whip. Mads, what's happening for you this week? Working on a new investment, hoping for a term sheet next week. All very exciting. Awesome. Well, I'm on holiday. So I'm off on holiday and then I'm joining Andrew, who's normally with us, and Lomax in Marrakesh. So that'll be some nice sunshine, although we've had loads in the UK recently. Wonderful, guys. thank you so much for your time chris thank you especially to you for for giving us the inside track of everything that's about you and bbca and pensions and all the good stuff so wonderful catch you next time bye bye bye

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