The boss of Oxford University’s flagship spin-out fund has delivered a stinging verdict on the City’s biggest savers, accusing UK pension funds of being “way off the pace” when it comes to writing cheques for the country’s most promising technology businesses, despite successive governments promising to fix the problem.
Ed Bussey, chief executive of Oxford Science Enterprises (OSE), said reform efforts such as the Mansion House accord, under which seventeen of Britain’s largest workplace providers voluntarily pledged to put more of their members’ savings into private and high-growth companies, are simply not moving quickly enough to keep up with the pace at which Oxford-rooted businesses are scaling.
“Everyone’s diagnosed the problem, but the movement towards the solution is just way off the pace in terms of the speed at which we and others are building companies,” Bussey told Business Matters. “We’ve got companies with technology that should be thinking about $100 billion in terms of the scale of opportunity, and that’s reflected in the international capital — and particularly US capital — that is being attracted into these sorts of companies.”
A british problem with American fingerprints
The numbers tell their own story. Bussey said the vast majority of the £300 million in external capital raised by OSE’s portfolio companies last year came from American investors rather than domestic backers. Across the wider market, UK scale-ups now source as much as 80 per cent of their funding from overseas, according to figures from UK Private Capital, the trade body for the British private equity and venture industry.
“There’s nothing wrong with US money per se,” Bussey said. “But the share of UK money, particularly UK pension money, just needs to be dialled up about ten times. I think there’s a lack of understanding [within pension funds] of this space, of the opportunity, of the potential returns.”
His frustration was sharpened by a recent conversation with a Gulf-based backer. “One of my Gulf investors said: ‘You are sitting on our equivalent of Gulf oil.’ But UK pension funds are largely missing in action from this opportunity. The rest of the world scratches its heads when they look at this.”
It is a complaint that will sound familiar to anyone who has tracked the growing chorus calling on Britain’s pension giants to back homegrown scale-ups before the upside is shipped offshore. For all the political enthusiasm around turning the UK into the “next Silicon Valley”, the capital that ultimately reaps the rewards of British science still tends to be raised in Boston, San Francisco or Abu Dhabi — not in Edinburgh or the Square Mile.
The Mansion House promise, and its critics
Both the previous Conservative administration and Sir Keir Starmer’s Labour government have made unlocking domestic pension capital a flagship policy. The 2023 Mansion House compact set a target of 5 per cent of default fund assets in private markets. Last summer, that ambition was doubled when seventeen workplace pension providers signed up to the Mansion House accord, formally announced by the Treasury, agreeing to allocate at least 10 per cent of their default funds to private assets by 2030, with at least half of that ringfenced for the UK, releasing an estimated £25 billion into the domestic economy.
Lord Vallance of Balham, the science minister, conceded the pace had been a source of impatience but insisted momentum was building. “Is it as fast as everyone wants? No. But it’s starting and I really believe that’s going to change quite rapidly,” he said.
Critics, however, argue that without firmer incentives — or, more controversially, mandates, Britain’s defined contribution savers will continue to underwrite foreign infrastructure and foreign pensioners’ retirements rather than the domestic innovation economy. As Business Matters publisher Richard Alvin has previously argued, the UK’s real scale-up crisis is one of conviction as much as capital: a structural inability to back our own.
From lab bench to billion-pound business
Bussey’s broadside arrived alongside OSE’s latest annual report, which painted a far brighter picture of operational performance. Net asset value rose 17 per cent year-on-year to £1.26 billion, lifted by two landmark exits.
In September, IonQ’s $1.08 billion acquisition of quantum computing pioneer Oxford Ionics handed OSE its first unicorn exit. Before the year was out, the fund also completed the sale of cancer-drug discovery business Dark Blue Therapeutics to US biotech giant Amgen in a deal worth up to $840 million. Between them, the two transactions returned more than £283 million to OSE.
Bussey said further realisations were now firmly in view. “Within the next two to four years we’re going to hit a phase of regular realisations. We’ve proven that we can take science out of a lab and create a billion-pound company. What’s more exciting is now we’ve got line of sight to that happening on a consistent basis.”
For Britain’s SME ecosystem, and the universities, investors and founders trying to turn world-class research into world-class companies, the question is whether the country’s own pension savers will own a meaningful slice of that upside, or whether, once again, the wealth created in British labs will end up funding retirements on the other side of the Atlantic.