Pension funds represent a strategic reservoir to finance innovation and the climate transition in Europe. Despite estimated assets of 2.7 to 3.55 trillion euro, their exposure to venture capital remains marginal: barely 0.1 percent of portfolios, according to a study published by European Women in VC, Pensions for Purpose and Venture Connections.
This stands in stark contrast with the United States, where public funds allocate more than 10 percent, and with the estimated 800 billion euro needed annually according to the Draghi Report.
According to the authors, pension funds have a long-term horizon that fits well with the venture capital cycle, and ESG objectives that should bring them closer to this asset class. Kinga Stanisławska, founder of European Women in VC, stressed that without stronger involvement, Europe will fail to finance its scale-ups and retain its talent. She also debunks a common misconception: ‘Many people confuse liquidity with safety. Real estate is seen as safe because it is tangible, but it is illiquid and sometimes risky.’ Venture capital, by contrast, is seen as uniformly dangerous, while in fact it has different levels of risk. Investing directly in an early-stage start-up is risky, but a diversified fund already reduces that risk, and a fund-of-funds reduces it further, with a loss rate below 1 percent according to Cambridge Associates.
Associates
Stanisławska noted that the additional fees associated with fund-of-funds are not an obstacle if the performance is strong. The Yale University model, whose endowment invested heavily in venture, has shown over 25 years that such allocations can deliver superior returns despite multiple layers of fees. The study confirms that European pension funds tend to favour indirect routes (fund-of-funds, co-investments, trusted managers) rather than direct commitments. But too often, they limit themselves to local or U.S. funds. Stanisławska regrets that pensions are still more willing to invest in the U.S. than in other European countries, weakening the continental ecosystem.
Some markets stand out. Nordic pension schemes invest about 400 million dollar, mostly in their domestic markets. Finland and Sweden stand out for their strong support of local VCs, and Iceland goes even further, with pension funds representing up to 80 percent of the investor base of some VC funds. The Mansion House Compact in the United Kingdom has set a target to raise pension exposure to private assets to 5 percent by 2030. Elsewhere, amounts remain modest: 200 million euro for France–Benelux combined, 130 million euro for DACH, and just 30 million euro in Southern and Central Europe.
The Luxembourg paradox
Luxembourg illustrates this gap well. The country is a global centre for alternative fund domiciliation, hosting among others the European Investment Fund and the Luxembourg Future Fund, yet its domestic pension schemes are small and highly conservative. All the ingredients are there: structuring expertise, high-level reporting capabilities, proximity to major institutional investors, said Stanisławska. She believes Luxembourg could become a hub for pension-friendly vehicles. The main obstacle, however, is the low willingness of domestic schemes to engage.
She also notes that internal teams handling alternative investments (private equity, infrastructure, real estate, hedge funds) are often small and have to cover a wide spectrum. Outsourcing selection to specialised fund-of-funds would be a suitable solution: ‘It’s a way to delegate diversification and active management to experts without overburdening internal teams,’ she said.
The challenge goes beyond financial performance. With an ageing population, pension funds need returns above the 1–3 percent expected from traditional asset classes. According to Stanisławska, venture is the only asset class capable of consistently delivering much higher returns. She called it a ‘win-win’: solving both the pensions’ return challenge and the financing of European innovation.
The comparison with the U.S. shows the gap: while large public funds like CalPERS and CalSTRS have made venture a strategic pillar, Europe remains cautious. Without large university endowments or active foundations, pensions are virtually the only source of long-term capital able to support this asset class.
The question is now clear for asset owners and consultants in Luxembourg and the Benelux: is opening up to venture capital compatible with their mandates, risk appetite and regulatory constraints? The study argues yes, stressing that solutions exist to calibrate exposure and manage risk.
The stakes are strategic: stand by as spectators, or become intermediation platforms able to channel the capital Europe needs for competitiveness and economic transition.