Big business appeal
RBS leads call for fund to support growth firms
Alison Rose: first move (pic: Terry Murden)
NatWest RBS and the bank-backed investment group BGF are spearheading moves to encourage big financial institutions and the government to help finance the UK’s growth businesses.
A new report released today by BGF and academic Sir Anthony Seldon calls for a £15 billion National Renewal Fund to recapitalise 21,000 key companies.
According to the report, backed up by data from PwC, there is a persistent shortfall in growth funding, which has a “profound impact” on the long-term prospects of the UK economy.
It says this “growth economy gap” is made worse by the UK’s regional disparities.
The report’s authors say the private sector must drive capital to growth economy companies, but the government must also play a more active role in liberalising that capital, incentivising and co-investing when appropriate.
BGF and the academic Sir Anthony Seldon are proposing a National Renewal Fund comprised of equity investment from the pensions industry, insurance companies, quoted investment trusts, private clients and, as an effective extension of the Future Fund, UK government funding for the wider population of growth companies.
In a first move, Coutts -– the private banking arm of NatWest RBS -– together with BGF will invest in a UK Enterprise Fund.
It will enable Coutts’ clients to invest in diverse and high-potential growth economy companies across all regions of the UK, with specific programmes for female-led businesses and aimed at increasing the diversity of management teams.
The partnership will build on Coutts and BGF’s existing platforms, drawing on the combined scale and financial firepower of the two organisations.
According to exclusive research undertaken by PwC for BGF there are more than 21,000 growth economy companies in the UK.
Growth economy companies are defined as those with turnover between £2.5m and £100m. The majority are fast-growing and profitable, with total turnover rising 4% a year on average (between 2013-18), compared with average GDP growth of 2% a year over the same period.
Recommendations outlined in the report follow interviews with 30 influential figures from the fields of finance, business and Government, such as Andy Haldane (chief economist at the Bank of England), Sir Douglas Flint (chairman of Standard Life Aberdeen), Lord Karan Bilimoria (President of the CBI), Sherry Coutu (entrepreneur, investor and founder of the Scale Up Institute), and Paul Johnson (director of the Institute for Fiscal Studies).
The solutions put forward in this report and the ambition to tackle the equity funding gap is in line with stated Government objectives — particularly to ‘level up’ the economy by tackling regional disparities, but also to increase national focus on R&D and to give pension holders greater control over their assets.
Sir Douglas Flint: among those consulted (pic: Terry Murden)
Sir Anthony Seldon, Vice-Chancellor of The University of Buckingham, said: “A solution focused on closing the funding gap currently faced by growth economy companies has become an urgent imperative. Growth across these businesses will be under serious threat unless decisive action is taken this autumn.
“Debt will not be a long-term solution. Indeed, too much debt will be crippling. Without equity investment, businesses – and the country as a whole – will not meet its growth potential, and the opportunities of a post-Brexit world will be squandered.”
Stephen Welton, Executive Chairman, BGF said: “This is not a bail-out fund. The drive towards a National Renewal Fund is about the private sector, with the convening support of Government, coming together to invest in the future and back growth economy companies as they scale up.
“This strategy must be deployed locally, it must be patient and it must be led, and delivered, by commercial organisations. This will ensure that UK growth economy companies and entrepreneurs have access to the equity funding they need to invest and employ through this period of economic decline, as key actors in the investment industry step forward to make this a reality.”
Alison Rose, Chief Executive of NatWest said: “Growing companies are an essential part of the entrepreneurial ecosystem, and providing the right type of financing to these businesses is fundamental to the recovery of the UK’s economy.”
The report lays out specific mechanisms for raising the capital required for a National Renewal Fund. These include:
- £3 billion invested through a quoted vehicle/s or comparable vehicles like the UK Enterprise Fund, to channel private client money to the growth economy.
- £3 billion of investment from defined benefit (DB) pension schemes run by the UK’s largest companies.
- £3 billion of investment from defined contribution (DC) pension schemes. To open up this source of funding, the report proposes a much-needed change to the fee charge cap situation.
- £3 billion from large private sector investors such as the insurance industry, sovereign wealth funds and other actors.
- £3 billion from Government in the form of co-investment that essentially extends the concept of the Future Fund and turns it into a long-term agent of change.
The report can be downloaded in full here: ‘From survive to thrive – Funding the growth economy to kickstart an investment-led recovery’