US pensioners benefit most from German start-up successes, German pensioners go largely empty-handed
A comprehensive analysis of the ownership structure of German start-ups by the venture capital firm Redstone shows that German pension funds invest significantly less in European future technologies compared to US pension funds. German pension and retirement funds represent only a subordinate investor base for German VC funds compared to US pension funds. While US pension funds account for about 27% of the investor base (limited partners) in American VC funds and also actively invest in German VC funds, where they account for about 15% of the capital.
In contrast, German pension funds account for less than 1% of the investor base in German VCs. Thus, German pensioners hardly benefit from the growth of new innovative companies, although both German and European venture capital firms are extremely successful in selecting emerging technology stars, so-called unicorns.
US pension funds indirectly hold about 10% of German start-ups via investments in VC funds. Of the 47 billion euros that German start-ups with Unicorn valuations are still worth overall after devaluations, about 4.7 billion euros are attributable to US pension funds. In contrast, German pension and retirement funds only benefit with about 94 million euros (approx. 0.2%).
The return on investments in venture capital (VC) was not only higher than for other asset classes but also led to a significantly lower fluctuation margin (volatility) with similar or better returns when different assets (asset classes) were included in the portfolio, thus ensuring diversification. This makes VC investments particularly attractive for long-term-oriented pension funds.
Case study Flix Mobility
An example of wasted investment potential is shown by the German bus world market leader Flix Mobility. German investors hold a total of about 34% of the company. However, German pensioners benefit hardly at all from this. American pensioners, on the other hand, enjoy significant value via the US investors involved.
Case study Planradar
The same applies to Planradar, the world market leader for cloud-based construction software from Austria. Here, German and Austrian investors together hold24%, but neither German nor Austrian pensioners get anything out of it, as neither Austrian nor German pensions or pension funds are involved in the respective VC funds
“There is a very large untapped potential for German and European pension and retirement funds to benefit from the success of the European startup ecosystem. Increased participation of pension funds in VC funds could help German pensioners to benefit from the success of the German and European startup ecosystem in the future and thus secure the prosperity of their members.” – Michael Brehm, Founding Partner Redstone
Finally, pensioners themselves should be more involved in the discussion in order to take their interests into account when designing the investment strategies of pension funds. Through better communication and transparency, pension funds can educate their members about the opportunities and risks of venture capital investments and thus create a better understanding of the importance of start-ups and venture capital in their investment portfolio.
Overall, Redstone’s analysis shows that there is an urgent need for German pension funds to rethink their investment strategies and become more open to venture capital investments. Only in this way can they ensure that German pensioners benefit from the successes of the European start-up ecosystem and thus secure their prosperity in the long term. It is time for both pension funds and policymakers to recognize this urgent need for action and take appropriate measures to make the future of pensioners and the startup ecosystem in Germany and Europe sustainable.
Link to download the extensive analysis
