Private equity tempts funds

Private equity firms are finally winning over the hearts and minds of the UK's pension fund managers, leading to billions more heading towards the industry.

Private equity firms are finally winning over the hearts and minds of the UK's pension fund managers, leading to billions more heading towards the industry.

Three of the largest funds in the UK have more than doubled their investments to around £1.5bn a year. The news will be welcome to private equity companies as fundraising becomes more difficult in the US due to the economic slowdown.

In the past the UK's private equity and venture capital firms have relied on the more entrepreneurial US pension funds for backing, as their UK counterparts have shunned the industry. However, a recent government-commissioned report recom-mended they increase their exposure.

Several significant pension funds have now taken this advice, lured by healthy returns from investments over the past decade. For example, 3 per cent of the Consignia pension fund – around £500m – is being invested in the industry, while the scheme trustees at BT and UK Coal have doubled their investments to £600m and £400m respectively.

"Historically, we were, as an industry, dependent for 70 per cent of our funding on the US," said John Mackie, chief executive of the British Venture Capital Association. "This year, fundraising in the US has been particularly difficult, but that should be at least partly compensated for by new UK money."

The total amount of extra money put into private equity will not be revealed until the BVCA publishes its statistics for 2001 next spring.