The potential higher returns from private investment can help plug a looming pensions gap and support domestic investment, according to Alan Merriman, co founder and CEO of Elkstone, a Dublin-based finance house.
The introduction of pension auto-enrolment, due to happen next year, should also include an opportunity for anyone who wants to put a slice of their savings into the kind of high-potential start-ups that can become spectacular financial successes, he said.
He was commenting on a pre-Budget submission by Elkstone, which manages venture capital funds that have backed Irish start-ups including Bobby Healy’s drone delivery venture Manna, clinical testing service Letsgetchecked and online food-ordering software firm Flipdish.
“Over the past 50 years allocating investments to private markets, private equity and venture capital has delivered higher returns for investors so it makes a lot of sense to allow people benefit from that,” Mr Merriman said.
Irish pensions and pension managers are constrained from allocating significant portions of assets to less liquid assets.
While private investments are less liquid and often riskier than the bonds and shares pensions tend to flow heavily into, he argues the long duration of pension investing – where gains can be compounded and losses made-up over time – makes it a suitable option for savers.
“We see this as sensible and pragmatic,” he said.
Irish individuals have total assets of €138bn invested in Irish pension funds that is currently passively invested, but some of which could be directed to generate employment and trading activity, he said.
Auto-enrolment is an opportunity to increase that pool and spread the potential benefits, he said.
“Why not let individuals choose to have a sliver of their money invested in Irish start-ups?”
The pre-Budget submission also called for technical changes to the Employment Investment Incentive Scheme (EIIS) to make it less restrictive, for example, to allow cases such as a company majority-owned by a holding company of the start-up founders to be eligible for tax relief investment.
“It is an anomaly and I think it is unfair to penalise a company just based on what can be a good structure from a tax-planning perspective. We come across cases where that has stopped us investing and the start-up goes abroad in order to be financed,” he said.
Elsktone, which also manages significant property investment funds, backed widespread calls from the sector for changes to the rent caps for the private residential sector, saying it is making Ireland less attractive for investment in a competitive international market.