According to the British Business Bank’s new chief executive, it wants more independence in order to be a UK “sovereign wealth fund” that can reinvest its venture capital investments.
Louis Taylor urged ministers to take key decisions about the future of the state-owned investment in economic development, including whether it should extend its venture capital arm beyond 2028.
The BBB is used by the government for commercial policy support. It invests in venture capital funds which in turn finance companies in technology and life science sectors. The BBB oversees regional investment financing and start-up funds. It also administers state-backed loan programs to assist businesses during the Covid-19 pandemic.
British Patient Capital, the BBB’s venture capital arm was established in 2018. It was given a 10-year mandate, and received an initial PS2.5bn government funding. This was after the Treasury recognized that some companies were being held back by a lack long-term financing. BPC is the UK’s largest investor in venture capital.
Taylor stated that the BB was now “of a size where its use could be usefully self-sufficient without the government budgeting process.” . . We should not be granted more capital. However, the capital that we do have should be recycled and should increase in value.
It must be viewed as a sovereign growth fund with long-dated infrastructure. He said that if we don’t have the ability to reinvest the profits of what we have, then the real value is lost.
Political and financial service executives have been discussing the possibility of creating a British sovereign investor for years. Nicholas Lyons, a veteran investment banker, and insurance executive, stated when he became lord mayor in London last January that he was working alongside City institutions to pool pension money for an investment fund up to PS100bn. This would be comparable to SWFs like those of Saudi Arabia and Norway.
Taylor claimed that the BBB’s 100 per cent growth agenda was compatible with the government’s plan for growth. He stated that the creation of a Department for Science, Innovation and Technology as part of the Whitehall reshuffle this week would make it “loom larger” on the balance sheet, since it was a smaller department.
He cautioned, however, that ministers would need more investment in areas not covered by existing programmes. This meant that they needed a larger budget to support industries that are focused on areas like net zero.
He said that loan guarantees were a good way to “do quite a bit of this [investing] in an economically neutral manner”.
Former banker, who joined BBB from the UK’s Export Credit Agency at the end last year, said that he wanted to expand the bank’s remit in order to fill additional funding gaps for British businesses.
Taylor said that this could be used to address other areas of its programmes, such as financing larger, faster-growing start-ups, which would otherwise be at high risk of being acquired, or require money from abroad.
“At the moment we are very programmatic with all of the requirements and we have an overall mission that we should be able serve better than just through the programs. . . Companies will remain in the UK for longer periods of time if there is more UK money.
The evaluationof BPC was published Monday by the BBB. It stated that companies supported by it had, on average, increased their workforce by 55 percent, which translated to approximately 4,600-5,000 additional jobs.
The bank achieved an adjusted return of 18.2% in the 2021-22 financial years, surpassing its 0.06 percent target. Profit before taxes was PS604.8mn. This is an increase of PS293.5mn from 2020-21. It is primarily due to an increase in net investment gains.
Taylor acknowledged that some of the gains made in the last two years may be lost because its portfolio is heavily geared towards the tech sector.
“Clearly, valuations are rising. He said that the outlook on business prospects is now more positive than three months ago.
In the 2021 Spending Review, the government allocated PS1.6bn to the BBB in order to expand regional funds such as the Northern Powerhouse or Midlands Engine which support companies from different parts of the UK.
The bank had total assets under management of PS4.1bn at March 31, last year. This includes debt financing for businesses of PS2.2bn, and equity financing of PS1.9bn.
Taylor highlighted a funding gap in companies seeking to raise more than PS50mn. He described it as “an area we could use to play, but that will require some resources”.
He said that the “halo effect” of a small amount of tangible government support was enormous for companies in industries that were taking higher-risk bets on innovation and new technologies.
He said, “And it comes with the stigma of government ownership and statism or choosing winners, because we are investing on a strictly commercial basis.”
Although the BBB’s administration of Covid support schemes has raised its profile, billions worth of fraud have been exposed since then — particularly in relation to “bounce back loan program” — after borrowers had only to undergo light checks.
Taylor took over the helm of the company after the schemes were ended. He said that the losses were due to the “bounce back” programme which was designed to quickly get money out.
Through convertible loans, the Future Fund committed more than PS1bn for start-ups. This fund was designed to help promising tech companies and early-stage companies during the worst of the pandemic. However, companies who received taxpayer money through this programme also failed.
Taylor acknowledged that the “Covid Venture Capital Portfolio” had a low level of curation. He stated that the fund was being sold off at new rounds of fundraising or through company sales.