Schroders Capital has received regulatory approval from the UK’s Financial Conduct Authority (FCA) to launch its third Long-Term Asset Fund (LTAF) and the first dedicated to UK venture capital.
The fund will be seeded with a cornerstone investment of £300m — £150m from Phoenix and £150m from the British Business Bank as part of an announcement in last year’s Autumn Budget by the then-chancellor Jeremy Hunt.
The newly approved LTAF will offer defined contribution (DC) and other institutional investors the opportunity to participate in the growth and development of “groundbreaking UK early-stage companies” focused on technology and life sciences, Schroders Capital said.
The firm added that it will invest in companies that are “pioneering” the development of long-term innovation themes such as artificial intelligence, quantum computing, fintech, cybersecurity and oncology.
While the cornerstone investment will be coming from the British Business Bank and Phoenix, Tim Horne, head of UK DC at Schroders, stressed that the fund will be open to external capital “as soon as schemes are comfortable”.
He explained: “There’s no limit that the cornerstone investor capital has to be invested first and then others; there is opportunity for DC schemes to come in from day one.”
However, he pointed out that this is a new asset class and there will be a need for an educational programme.
“We already started doing that with certain schemes and consultants and over time we would expect schemes to want to look at this. They don’t need to wait to the end of a three/four-year investment period before they can get invested,” Horne noted.
He hopes the fund will remove some of the barriers that prevent pension schemes to currently invest in UK venture capital and build on the government’s growth ambitions.
“It’s not that schemes are unaware, but the structures and the ability to do that in a format that is suitable for their needs really hasn’t been there before and making it as simple as it can be,” he said.
Horne acknowledged that this is a private market investment, so there will still be some “complexity” to that, but he said that removing barriers and providing scale will be “critical”.
He added that the capital from British Business Bank and Phoenix will give confidence to investors that they can invest into the programme in the “long term”.
Timeline
Having received regulatory approval, Horne said the firm is now going “through the process where you go from authorisation to fund being ready to take the first capital”.
He noted that taking the first capital will “be dependent on the investment team when they’ve sourced a pipeline of deals In the coming months”, adding that Schroders Capital will focus on talking to the DC market as well as local authorities on how they can invest in the UK.
This marks a third LTAF for Schroders Capital, having launched the UK’s first LTAF in April 2023 and another one earlier this year.