Efforts by the UK chancellor of the exchequer to improve access to later-stage funding for UK start-ups are very welcome, but any reform needs to be handled carefully, says Nicholas Hyett, investment analyst at Wealth Club.

In his annual Mansion House speech Jeremy Hunt unveiled plans which included, making large pension funds to invest 5 per cent of their assets in private equity and early-stage companies; and support for a new trading venue for private companies.

Hyett said: “Forcing pension funds to abandon bond investments in favour of substantially increased risk would be a mistake, in our view.

“However, there are attractive returns to be made in smaller companies, and holding them as part of a diversified portfolio makes complete sense for a pension fund – just as it does for an individual.

“This is particularly the case for the defined contribution schemes that are now the norm for millions of investors – with the government estimating increased investment in private equity could add £1,000 a year to an average retirement income. Large VCTs [the 10 largest generalist VCT managers] have delivered an average return of 90 per cent over the 10 years to the end of March [not inclusive of tax relief] – better than the main stock market over the same period.”

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