Investment trusts, pensions urged to back UK firms

A new report from the UK’s Business Growth Fund (BGF) has warned of a serious rising shortfall in equity funding and called for pension funds, insurance companies, quoted investment trusts, private clients and the UK government to back an investment-led renewal plan.

The report by the BGF and historian Anthony Seldon calls for urgent action to recapitalise 21,000 firms – what it calls the UK’s “growth economy 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.

The BGF warns this “growth economy gap” is made worse by the UK’s regional disparities and there is a risk the Covid-19 crisis will turn this gap into a chasm.

The report said “it is the job of private actors to drive capital to growth economy companies, but the government must also play a more active role to crowd that capital in by convening, liberalising, incentivising and co-investing when appropriate.”

The BGF and Seldon are proposing a solution in the form of an overarching £15 billion National Renewal Fund.

“This pool of capital will be 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,” said the BGF.

In a first move, Coutts – the private banking arm of NatWest-RBS – together with BGF is announcing the launch of its fundraising for The UK Enterprise Fund.

The BGF said the fund 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 research undertaken by PwC for BGF, the findings of which are unveiled in the report, there are more than 21,000 growth economy companies in the UK.

The BGF said growth economy companies are those businesses with turnover between £2.5 million and £100 million – with the majority being 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.

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.

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Mark McSherry
Dalriada Media LLC sites are edited by veteran news journalist Mark McSherry, a former staff editor and reporter with Reuters, Bloomberg and major newspapers including the South China Morning Post, London's Sunday Times and The Scotsman. McSherry's journalism has also appeared in The Washington Post, The Guardian, The Independent, The New York Times, London's Evening Standard and Forbes. McSherry is also a professor of journalism and communication arts in universities and colleges in New York City. Scottish-born McSherry has an MBA from the University of Edinburgh and a Certificate in Global Affairs from New York University.