Is Lithuania losing investment opportunities? Experts call for strengthening pension funds

Is Lithuania losing investment opportunities? Experts call for strengthening pension funds

Lithuania's economic growth is increasingly driven by investments in innovation and the rapidly expanding start-up ecosystem, but to ensure the country's long-term competitiveness, it is essential to strengthen the funding chain, where pension funds could play a more significant role. In order to achieve long-term economic growth and competitiveness, it is essential not to destabilise, but rather to strengthen the pension system, allowing more capital to flow into innovative businesses.

Experts in the investment and innovation ecosystem - the Lithuanian Venture Capital and Private Equity Association (LT VCA), the Lithuanian start-up association Unicorns Lithuania, and the Lithuanian business angel network LitBAN - unanimously emphasise that a consistently growing and stabilised pension system would ensure sustainable and long-term investment in Lithuania's innovation sector, while at the same time increasing the return on the funds and building economic resilience. But is Lithuania today ready to further strengthen its investment ecosystem and ensure that pension fund capital becomes an even more important driver of economic growth?

Globally, pension funds are important players in building economic resilience by investing in high-growth companies and future-proof industries - health, conservation, technology and others - through venture capital and private equity funds. By allocating capital to venture capital (VC) funds, VCs are able to take reasonable risks by investing in early-stage and growth companies. In turn, these investments accelerate the development of Lithuania's most promising companies, stimulate job creation, technological change and ensure the country's competitiveness.

Experts point out that Lithuanian citizens are making a significant contribution to strengthening the economy through the general investment mechanisms by saving for their retirement through the second pillar of the pension scheme, which has been in operation for 20 years, and is already generating an estimated investment return of €3.5 billion today.

Today, only 50% of employees in Lithuania actively participate in the second pillar of pensions. Increasing the number of savers and maintaining state contributions, while continuing to channel investments to companies operating in Lithuania, would mean a long-term return for all participants and stimulate the growth of the Lithuanian economy. For example, in 2024, second-tier fund managers invested 11.7% of assets in Lithuania and, if the system remains stable, this could rise to 16% in 2030. However, any weakening of the system would distance the country's economy from the potential billions of new investments and bring it closer to other undesirable phenomena.

Greta Mieliauskaitė, Director of the Lithuanian Private Equity and Venture Capital Association, explains how investments flow from pension funds to companies. Pension funds allocate part of their capital to private equity and venture capital funds, which specialise in identifying and financing the growth of high-potential companies. These funds, in turn, invest in start-up and growth stage companies, providing the necessary capital for innovation and expansion. The return on investment is returned to the pension funds, which benefits the savers while boosting economic development.

"More pension fund members would mean more investment in the funds. We have seen in other markets, such as the UK and the US, that pension fund activity in the VC area is yielding positive results. It is time for Lithuania to follow suit. But for today, we should start at least by maintaining the stability of the existing system and ensuring that the capital currently held in them continues to be channelled appropriately," says the Association's representative G. Mieliauskaitė.

According to the head of the Association, the EUR 9 billion currently accumulated in pension funds represents a huge potential for the development of Lithuania's high value-added economy and for the creation of long-term progress. An imbalance of this accumulated capital would disrupt its proper further investment in the emerging breakthrough and ecosystem.

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Startups' value has grown 39 times in 10 years

Gintarė Verbickaitė, CEO of Unicorns Lithuania, emphasises that a well-functioning VC and pension fund investment structure is important to maintain Lithuania's position among the fastest growing startup hubs in Central and Eastern Europe. The latest Lithuanian Startup Ecosystem Report (2024) shows that the country's startups have increased their value by 39 times over the last decade, with a total valuation of over EUR 16 billion. This success has been the result of strong investor interest, especially in areas such as cyber security, financial and deep tech.

"The success of the Lithuanian start-up sector is no accident - it is the result of a supportive ecosystem, international and local capital and strategic investments," says Gintarė Verbickaitė. "In 2024 alone, Lithuanian start-ups attracted €128 million in investment from venture capital and private investors. Pension funds are a significant part of the investment ecosystem, so maintaining their stability is important to ensure additional investment in the innovation ecosystem." - Unicorns Lithuania's CEO spoke about the need for a long-term vision.

The snowball effect: successful start-ups spur new business creation and attract even more investment

Sustainable long-term investment from pension funds in Lithuania's innovation sector contributes not only to economic resilience, but also to building a stronger business community and further growth.

Business angels - private investors who provide capital, mentoring and networking with potential customers, foreign partners and the wider investor community in the early stages of a company's growth - play a particularly important role in Lithuania's investment ecosystem.

Representatives of the Lithuanian business angel network LitBAN say that LitBAN members alone invest about EUR 7-10 million per year in Lithuanian start-ups, and in 2024, almost 60 per cent of investment deals in Lithuanian start-ups were made with the participation of business angels. In terms of business angel investment in terms of GDP, Lithuania is currently third in Europe. If we add the investments of individuals who are not part of the LitBAN network, but invest in startups on their own, it is estimated that the amounts are even more significant and that we have the potential to become the first.

"In order to grow the Lithuanian startup ecosystem and to have more innovative companies and unicorns, it is necessary to ensure the possibility of attracting investments at all stages of a startup's development, creating a "snowball" effect. If business angels invest at an early stage and the startup grows, it can later attract local venture capital, and eventually investments from larger foreign funds. Startups that have grown and attracted successful investments stimulate the creation of new companies, and their employees become business angels themselves, fueling a new cycle of startups," said Roberta Rudokienė, CEO of LitBAN, who shared her insights on the long-term perspectives.

Unlocking potential: the path to sustainable growth

An efficient investment chain linking pension funds, venture capital and start-ups can drive Lithuania's economic growth for decades to come. By strategically growing pension fund capital and channelling it to VCs, Lithuania can secure even greater investment opportunities and become a leading innovation hub.

As LT VCA, Unicorns Lithuania and LitBAN underline, the key to the country's economic growth lies in an efficient financial ecosystem where capital moves seamlessly from investors to high-growth potential companies - today, Lithuania is in a unique position not only to sustain but also to accelerate its growth in the global innovation space.