What do the Mansion House reforms mean for your communications?
For life sciences start-ups, raising investment can be difficult, not least due to the intense competition for attention from a relatively small group of venture capital and private equity houses. For many years, innovative healthcare businesses, most of which are ‘unlisted’, have been overlooked by pension fund managers as candidates for investment due to poor liquidity and the perception of risk. But the voluntary agreement reforms unveiled in the Chancellor’s most recent Mansion House speech is set to change the investment landscape for the better.
According to a 2022 industry survey, only 14% of defined contribution (DC) pension scheme members believed they were on track for a retirement income that would allow them to maintain their current standard of living in retirement. Much of this can be attributed to the fact that, currently, just 1% of the £4.6 trillion of UK pensions & insurance assets, and just 0.5% of UK direct contribution (DC) pensions assets, are invested in unlisted UK companies (City of London). This means that those enrolled in DC pension schemes do not benefit from the high rate of growth & ROI that investments in unlisted, innovative businesses can offer.
Despite the potential for a high ROI for prospective investors, many fund managers perceive biotech and pharma businesses as high-risk investments. Much of this perceived risk could be attributed to the lack deep scientific expertise amongst many fund managers, thus the inability to discern high potential investments from those which are overvalued or high risk. As a result, traditional targets for innovative Life Science & Biotech businesses seeking investment have been limited to venture capital, angel investors and private equity.
Pharmaceutical businesses can struggle to attract investors due to the smaller pool of potential firms willing to expose themselves to the sector and the fact that those that do invest, spread their resources thinly amongst many businesses. Lengthy and expensive clinical trials mean there are significant barriers in place for early-stage developers to access regulatory approval & demonstrate efficacy. Professor Andy Whiting, CEO of Nevrargenics - one of our clients developing novel drugs for neurodegenerative diseases - commented on the need to change the rules around pension fund investments back in April, stating:
“One way forward could be to change the rules guiding investment strategies for pension funds, for example. Allowing increased exposure to early-stage drug development would unlock huge sums to fund vital research and gives investors a chance to make extraordinary returns if they back the right companies.”
(Originally published in European Pharmaceutical Manufacturer)
In light of this issue, the Chancellor and Lord Mayor of London recently announced a voluntary agreement by the pensions industry, which will commit a 5% allocation of investment into unlisted equities by 2030. With Aviva, Scottish Widows, Legal & General, Aegon, Phoenix, NEST, Mercer, M&G and Smart Pension all signing the agreement, it could unlock a potential £50 billion of investment for Britain’s innovative industries; a monumental step in unlocking translatory funds.
We help Life Science & Biotech businesses to raise their profile with investors and these reforms mean that it will be increasingly important to look beyond the traditional candidates. As we approach the 2030 milestone, companies will need to ensure their investor communications strategy targets pension fund managers if they are to make the most of the opportunity these changes bring.
