Pension fund becomes catalyst for New Jersey's deep tech and energy transition: 'Can help close funding gap'

Recently, Effect Photonics announced that it had raised €35 ​​million in funding. The bulk of it, 20 million, comes from pension funds PMT and PME. Together, the companies announced $100 million will soon be made available for deep technology scale-ups. Shortly after, five of the Netherlands' biggest pension funds announced they would invest “billions of dollars” in the energy transition. “We want to give more meaning to the Dutch energy transition and can actively invest further,” wrote ABP, PFZW, PMT, BpfBouw and PME. What can we expect from this new role for pension funds in the Netherlands? And where will this “leapfrog” come from?

Why this is important:

Dutch pension funds are taking on a new role as investors in innovative technologies. In this article, we asked three experts how this development will drive deep tech scale-up and energy transition in the Netherlands.

longer process

“I do not interpret the recent announcements as breakthroughs,” said Nad Sinteny. “Rather, it is visible evidence that the process is going on much longer.” Sintenie is a general partner at the investment fund Innovation Industries. In 2017, PME, the pension fund for NXP, ASML employees and others, became the first Dutch pension fund to invest in an independent Dutch deep tech venture capital fund (Innovation Industries Fund I). In 2019, PMT (Pensioenfonds Metal en Techniek) joined his second Innovation Industry Fund. They are also two of the major parties in the third fund.

Calls from politicians (earlier this year, outgoing economy minister Micky Adriaenssens still urged pension funds to invest in strategic Dutch technology) and advocates have been heard for some time. . “PMT and PME are designing a survey where participants will give their opinions on where their money should go,” said Victor van Will, portfolio manager at MN, PMT and PME's asset management company. “From all of this, it was clear that participants and employers wanted to make more use of Dutch innovation in 2015.”

Indeed, despite recent announcements to invest in Dutch innovation, pension funds invest the majority of their assets abroad. According to statistics from De Nederlandsche Bank, 82% of invested assets in the first quarter of 2023 were invested in foreign stocks, 40% in other European countries and 24% in North America. However, the share of domestic investment has sharply increased from 15.7% to 18.3% since the beginning of 2022.

Innovative Dutch company Dynaxion goes bankrupt despite groundbreaking technology – deep tech’s major funding problems exposed

Dynaxion Security was declared bankrupt. Despite its potential to revolutionize substance identification, essential to curbing the Netherlands' notoriety as a drug exporter, Dynaxion struggled to secure the funding needed for its crucial prototype.

legal obligation

Pension funds are legally required to be careful about the contributions their members make, even if some voters are pushing for different types of investments. Metal pension funds aim to invest the majority of their portfolio in private equity (or unlisted companies). An increasing proportion of this money is going to venture capital. Van Will explains that this form of financing is classified as high-risk within a private equity strategy, as it is offered to startups and scale-up companies that are thought to have long-term growth potential.

Asking Dutch citizens for retirement benefits comes with great responsibility. “Our main mission is to ensure good quality and sustainable pensions,” Van Will said. That's why five pension funds are seeking government guarantees when investing in innovative technologies that carry much higher risks. Governments can achieve this by bearing some of the risk. For example, enter into public-private partnerships.

“It has to be investable for us. Moreover, investing in deep tech startups and scale-ups requires a lot of expertise. It helps when government agencies like Invest-NL also invest. Five years ago, initiatives like this didn't exist,'' says Sebastian Ranner, who is also a portfolio manager at MN.

The billion dollars committed by PMT and PME is being invested in scaling up deep tech in the Netherlands through the Innovation Industry Strategic Partners Fund. “There is a strong demand for direct investment by pension funds in early-stage companies,” Sinteny added. “Indirect investing in funds that understand how deep technology scale-ups work makes much more sense.”

big promise

Ranner points to photonics companies such as Smart Photonics and Effect Photonics as examples. These are really breakthroughs that we're trying to scale up. Therefore, we need venture capital. “If we take smart photonics as an example, the government and a group of companies have invested €100 million in this because the Dutch photonics factory is an important part of the photonics ecosystem and requires a lot of capital. If we are willing to take on this financial risk, we can act together.”

The ultimate goal is for more pension funds to follow the example of PME and PMT, allowing more significant funds to emerge. Shinteny said pension funds are ideally placed to successfully scale up high-tech businesses that require large-scale financing. “When we build a photonics production facility, we have to hold our breath for a long time, but in the end it brings a huge added value for the Netherlands and Europe. The whole ecosystem benefits.”

Mr. Runner agrees. “There is a huge gap in the capital markets in terms of scale-up. Pension funds can fund these companies. We recognize the risks. But at the same time, we can help build an ecosystem around key Dutch technologies.”

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