Pension funds fail venture challenge
The National Association of Pension Funds has just published a report decrying the lack of time and effort that has gone into setting up defined contribution retirement plans. The gripe comes as companies are increasingly closing their jobs-for-life final salary schemes and shifting all the investment risk to staff by replacing them with defined contribution plans. While it is true that these schemes are not always well throught through, the NAPF’s concerns miss the central point that if investment returns in pension funds were consistently positive, structural issues would be less relevant. And this applies to any retirement plan, anywhere in the world.
Yet pension schemes persist with high weightings to volatile equities. Alternative asset classes, which should help smooth returns, are gathering momentum but venture capital barely registers on the radar of most pension fund investment committees despite its low correlation with shares and potential to outperform.
Why the reluctance? After all, pension funds, with their long-term outlook, are probably best suited of any investors to venture capital. Well, the return statistics don’t look good. Where buyout funds averaged 18.5 per cent a year over 10 years for funds raised since 1996, and mid-market funds returned 9.6 per cent, venture funds were down by an average of 2.5 per cent a year during the period, according to the British Venture Capital Association.
The UK government, aware of the reluctance to invest in start-ups, has provided some carrots for pension funds. It has launched six funds to tackle the “equity gap” for firms raising £500,000-£2m to expand their businesses. The response has been encouraging: this year, four east Midlands local authorities - Nottinghamshire, Derbyshire, Leicestershire and Northamptonshire - committed more than £12m to the funds.
But most pension funds are still sitting on the sidelines. For this, the pension fund consultants have much to answer for. They preach the merits of diversification yet, when it comes to firm action, few can be bothered to perform the due diligence on venture funds that their pensions clients demand. Yes, the sums involved are relatively small compared to global equity mandates that can run into the billions; but the pro-rata returns can be much larger than investing in large-cap stocks.
Of course, consultants have a fiduciary duty to pension fund members and recent returns don’t appeal to their caution. But the figures are still heavily skewed by the (hopefully) one-off disaster of the high-tech boom and bust period. Forthcoming data may well be rosier.
Why else would 3i, not known for pursuing lost causes, give strong backing to its venture arm at the end of last year despite a falling venture portfolio? If any further encouragement is needed, pension funds should take a look at the Wellcome Trust, Europe’s largest endowment, and take a peek at returns from Wellcome’s venture portfolio.
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The Week's Deals
Thirty-two companies gained venture funding this week, nineteen were of undisclosed value. The deals raised a total of €96.7m, which is €7.4m on average.
immatics biotechnologies, the Germany-based biopharmaceutical company developing peptide-based immunotherapeutic substances for the treatment of cancers, has raised €40m in a second round of funding. The investment was co-led by
Wellington Partners and
3i and included
KfW Bankengruppe,
National Technology Enterpise Company,
DH Capital,
BC Brandenburg Capital,
Landeskreditbank Baden-Wuerttemberg-Foerderbank,
EMBL Ventures,
Vinci Capital,
L-EigenkapitalAgentur,
Grazia Equity and
Merifin Capital. immatics’ product candidates are based on so-called tumor-associated peptides, which specifically stimulate the immune system against cancer cells.
Colibria, the provider of mobile instant messaging (MIM) products, has raised €10m from
Northzone Ventures,
Verdane Capital and
Ferd Venture. The funding will be used for international expansion, to support Colibria’s growing customer operations and for the ongoing development of products to launch, grow and enable interoperability for MIM services.
ActoGeniX, the Belgium-based biopharmaceutical company has completed the second closing of its series A funding round. The deal was co-led by
GIMV and
Life Sciences Partners. ActoGeniX is developing a portfolio of therapeutic products addressing major diseases including gastrointestinal diseases, auto-immunity, allergy and metabolic diseases. The company says that the financing will allow it to perform clinical trials with initial products and fund operations until at least mid-2009.
Elsewhere
AePONA, the UK-based provider of service network products to the telecommunications industry, raised €7.7m from
Trinity Venture Capital,
Polaris Venture Partners and
Amadeus Capital Partners;
Qlayer, the Belgium-based provider of datacentre products, raised €7m from
Wellington Partners,
Partech International and
Big Bang Ventures; and
Plazes, the Switzerland-based geo-community platform and web service for mobile social navigation, received €2.7m from
Doughty Hanson Technology Ventures.
See below for a complete list of deal headlines.
Did we miss anything? If you think we have missed a deal or know of a deal that is about to close then send us your
deal news.
The Week's Exits
Deep Breeze, the Israel-based medical-imaging company, is reported to be set to float on Nasdaq, valuing it at about $250m. Deep Breeze is developing non-invasive lung and cardiac diagnostic imaging systems based on its proprietary, radiation-free, acoustic imaging technology.
Cellectis, the genome engineering specialist that is developing a range of products for the custom rewriting of DNA sequences, has completed its Alternext stock market listing, raising about €21m.
Elisa, the Helsinki Stock Exchange-listed telecommunications supplier has acquired
First Orange Contact, the venture-backed supplier of contact centre systems. The deal values First Orange at about €3.4m.
Germany-based Hitflip has acquired
Swopex, the UK-based DVD and games marketplace. Hitflip claims to run Europe's biggest peer-to-peer swap platform for media products such as DVDs, games, CDs, audiobooks, and books.
Elsewhere,
Neuro3D, the France-based biopharmaceutical company, has ceased trading. Neuro3D was developing treatments for psychiatric disorders such as schizophrenia, depression and anxiety. You can read more in our blog post
The highs (and lows) of early stage drugs .
People Moves
Proficiency, the developer of computer-aided design integration software, has appointed Alex Shapira as its new chief executive. Proficiency is headquartered in the US with research and development facilities in Israel.
ReVolt Technology, the rechargeable battery technology company, has appointed Bruno Thuillier to the company's board of directors. Mr Thuillier has worked for 24 years within the wireless and IT industry in a number of senior positions, most recently at Siemens Mobile/ BenQ Mobile. ReVolt has developed a rechargeable Zinc-air battery, which it says represents a breakthrough in battery performance, with a substantially higher energy density at a competitive price compared to other rechargeable batteries.
Elsewhere,
EpiSpeed has appointed Dr Matthias Kummer as chief executive and Hernic Larsson has replaced Viktor Björk as chief executive of
The Chimney Pot.
Most Accessed Companies
NovaThera, the UK-based spin-out of Imperial College, London, has attracted a lot of attention this week. NovaThera is a regenerative medicine company, specialising in tissue engineering scaffolds and human embryonic stem cells. The company’s closest product to market is its TheraGlass technology platform, a bioactive material which interacts with the body’s tissues to stimulate cell growth and provide antibacterial, structural or regenerative proteins. The company intends to launch a product incorporating this technology before the end of the year. Late last year it was reported NovaThera was in the process of raising a series B round of about £2-5m, which it expected to close within three months.
Frontier Silicon, the UK-based fabless semiconductor company, has also received a lot of attention recently. Frontier Silicon creates integrated system-on-chip products for digital radio, television and other consumer multimedia electronics components. Recent news since the company’s mid-January funding round includes the announcement of a single-chip integrated circuit for DVB-H broadcast mobile digital TV, which the company says will enable longer battery life, smaller handset form factors and faster time-to-market.
Other companies generating interest recently include
Trampoline Systems,
Innohome, and
AePONA Group.
There are now 9,595 companies in the database and 7,114 investors, comprising 3,535 institutional, 2,968 corporate, 473 individual and 138 other. Of the database's 32,262 contacts, there are 18,430 executive, 7,279 CEOs, 2,468 chair, 1,416 non-executive and 2,669 other.
