Unlocking Pension Fund Potential: Addressing the European Growth Stage Funding Gap

European pension funds invest a mere 0.007% of their total assets under management in European VCs according to Atomico State of European Tech 2024 while in the USA pension funds allocate a significant portion of the investments to Private Equity and Venture Capital.

According to the European Capital Market Institute investments by US pension funds make up more than 50% of PE/VC investments. US pension funds are a main source of funding for early stage and growth capital!

European Governments are now promoting reforms to address this issue. The UK Government has proposed the Mansion House Compact, the French Government introduced the Tibi Initiative and the German Government the WIN-Initiative. They propose major reforms, including tax reforms, to channel the huge amounts of pension fund capital into Private Equity and Venture Capital to fuel investments.

Even more, the European Commission's Single Capital Market initiative, the “Capital Market Union”, aims to create a unified market for capital across the EU. One of its key objectives is to integrate national capital markets into a genuine single market.

Interestingly, the reports I read agree on one thing: Money is not the issue! The challenge is to unlock pension funds from regulatory and tax constraints. Even a small percentage change in the sheer volume of capital European Pension Funds hold is capable of addressing the funding gap of USD 375B, according to Atomico, for startups and scale-ups.

Sounds like a major shift is on the horizon for European investment. Time to make it happen!