Council pensions back £300m fund to power northern start-ups

An investment company chaired by former Treasury minister Lord Jim O’Neill has raised more than £300m to back northern start-ups.

The fundraising includes £150m from local authority pension funds, made up of South Yorkshire, West Yorkshire, Greater Manchester, Merseyside and East Riding. Other investors included M&G and Columbia Threadneedle.

The Treasury has been pressuring pension funds to unlock more funding for start-ups by backing venture capital funds. 

In July, nine of the country’s defined contribution funds agreed to allocate up to 5pc of their assets to unlisted equities by 2030, as part of Chancellor Jeremy Hunt’s Mansion House reforms.

The hope is the changes could unlock as much as £75bn to invest in high-growth businesses that typically do not receive cash from retirement funds.

Northern Gritstone has already backed 15 start-ups in the North of England. 

The fund is targeted at investments outside of the so-called “golden triangle” of London, Oxford and Cambridge, which have typically attracted the vast majority of UK start-up funding. 

These include Manchester’s Imperagen, a company spun out of the University of Manchester developing novel enzymes for chemical manufacturing, and Re:course AI, an AI-powered education company for the healthcare sector.

Northern Gritstone confirmed its first fundraising tranche of £215m in May last year, with the remainder raised since then. Bankers from Lazard advised on the effort.

Lord O’Neill, the crossbench peer and former chairman of Goldman Sachs Asset Management, said the funding from pension managers was a “show of faith in the potential for growth in the northern economy”. 

Duncan Johnson, chief executive of Northern Gritstone, said: “For too long, the North of England’s world-class research and innovation has not received the funding it deserves. Today’s announcement is a vote of confidence.”

The fundraising comes despite a dip in venture investment into Britain since the coronavirus pandemic. 

A report from HSBC Innovation Banking, formerly Silicon Valley Bank, earlier this week showed UK start-ups were on course to raise roughly $18bn (£14.8bn) in funding in 2023.

This is down from a high point of $42bn in 2021. Since then, the market for venture capital investment has tightened as interest rates have surged. 

Among the cities that enjoyed a funding boost was Sheffield, which saw venture capital investment increase 145pc in 2023, despite a wider fall in other regions.