M&G Investments and Schroders are among the asset managers competing in the Scale-up Fund manager race, vying to oversee a new £1bn government-backed vehicle that will direct pension money into the UK’s fastest-growing science and technology companies. Sky News reported that a number of other firms, including early-stage investors, are also understood to be in the running. Which raises an obvious question: what does the choice of manager signal about how seriously the government expects this fund to perform?
What the Scale-up Fund is designed to do
The fund was announced last month and will invest in high-growth science and technology companies using capital drawn from UK pension schemes. It has secured support from the British Business Bank, the UK’s state bank, which will provide administrative and financial backing.
Pension funds already backing the initiative include LPPI, Border to Coast, Railpen and Nest. Phoenix Group is also committed, with the British Business Bank stating it will provide £250m of pension investment. Together, these commitments are expected to generate over a billion pounds of investment into UK science and technology companies, according to the British Business Bank.
The policy rationale is straightforward enough. Policymakers want to stem the flow of promising UK startups selling to overseas buyers or relocating abroad in search of larger pools of growth capital. The government has said the fund will help keep more high-growth businesses in Britain while generating stronger returns for pension savers.
Prime minister Andy Burnham, in a statement issued last month, described the proposal as ‘a vote of confidence in British business, British talent and British ambition.’ He said: ‘This new fund would help unlock good growth in every postcode, connecting pension investment with the entrepreneurs and technologies that will reindustrialise Britain and create the jobs of the future.’
The Scale-up Fund manager race: who is and isn’t involved
Stockholm-based EQT, which manages the EU’s similar Scaleup Europe €5bn fund, is not thought to be in contention, according to Sky News. That leaves the field to domestic and other international managers, with M&G and Schroders the named frontrunners so far.
The eligibility criteria for companies seeking investment from the fund have yet to be published, which means the practical scope of the mandate (and therefore the type of manager best suited to run it) remains somewhat open. Early-stage investors are understood to be among those applying, suggesting the fund may back companies at an earlier point in their growth curve than the name alone implies.
There is a useful precedent to look at here. The British Business Bank’s British Growth Partnership Fund I has already made its first investment: £8m into autonomous driving company Wayve, according to the British Business Bank. That prior vehicle offers a rough template for the kind of deployment the new Scale-up Fund is expected to follow, directing pension capital into venture-stage technology businesses that might otherwise look overseas for their next funding round.
The Wayve investment is instructive for another reason. Autonomous driving sits squarely in the category of capital-intensive, long-horizon bets that UK pension funds have historically been slow to make. The fact that a British Business Bank-backed vehicle has already moved there suggests the ambition is real, even if the scale is still modest relative to the £1bn target.
Whether the Scale-up Fund can move meaningfully faster than its predecessors will partly depend on which manager gets the mandate. A firm with deep venture networks brings deal flow; a larger traditional asset manager brings operational scale and pension-fund relationships. The two don’t always sit easily together, and the eligibility criteria (when they finally land) will go some way to clarifying which profile fits better.
The British Business Bank has said it expects the combined pension commitments to generate over a billion pounds of investment into UK science and technology. That target now has names and institutions behind it. The next milestone is knowing exactly what they will be allowed to back.
