PKF Francis Clark has advised eXmoor pharma, the Bristol-based cell and gene therapy (CGT) services experts, on an initial investment of £12m ($17m) from specialist healthcare investment…
I was intrigued by references to “first investments of the £15bn National Renewal Fund expected to be made in the first quarter of 2021” in my business news feed over the weekend. To be honest I did not realise the National Renewal Fund was as far along as this – and on further research I am still not sure it is fully formed as yet – but this is what we know so far.
National Renewal Fund – concept
Conceptualised in a report issued at the end of October, the National Renewal Fund was put forward to address low levels of capitalisation in UK SMEs; an issue exacerbated by the impact of Covid-19 (including the debt taken on by SMEs – something which I have commented on previously).
More specifically, according to the report released by the Business Growth Fund (BGF) and historian Sir Anthony Seldon, it refers to:
- Urgent action needed to recapitalise 21,000 businesses – referred to as “the UK’s growth economy companies”
- A persistent shortfall in growth funding, which has a profound impact on the long-term prospects of the UK economy
- 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 proposed solution is 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.”
The report outlines 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
I highly recommend the report as an interesting and thought provoking read.
National Renewal Fund – current position
According to an article in the Sunday Telegraph “It [BGF] has launched the first stage of the plan but is still in talks over tapping investment giants.” And further that “The BGF is in talks about obtaining funding and launched an initiative last month that will allow clients of private bank Coutts to invest in the fund.”
So far, I have been unable to locate a reference to National Renewal Fund on the Coutts website.
In addition to those ‘growth economy companies’ I do think that somehow the (patient) equity market needs to be broadened out to ‘good’, ‘solid’ companies that may not be showing the high growth potential attractive to investment funds and may fall outside current Enterprise Investment Scheme rules. Unless we can address this problem as well, I can see the potential problem of “zombie companies” highlighted in the Sunday Telegraph article hampering economic recovery from Covid-19. As the article states:
- “Zombie companies are firms that generate only enough money to operate and service their debt burden but cannot invest to spur growth
- TheCityUK Recapitalisation Group has estimated that unsustainable corporate debt in the UK will hit £70bn by the end of March 2021, with more than £20bn coming from the Government’s support schemes providing state-backed loans.
- That forecast is likely to increase as many businesses are forced to temporarily close during a second national lockdown.”
And finally, a nod to the crowdfunding sector and business angel investment:
- Although the BGF report states “Seedrs and Crowdcube…are small relative to the needs of the growth economy and tend to appeal to mostly individual, retail investors” we see this avenue to equity funding as increasingly important in the coming months and we also see potential for information collated from the platforms to have value in investment decisions going forward.
- Business Angels also have an important role to play (and are continuing to play – see blog).
- And underpinning, to an extent, the attractiveness of individuals in investment in looking at SME investment we have the Enterprise Investment Scheme and Seed Enterprise Investment Scheme – see blog,
PKF Francis Clark
We have extensive experience in working with clients looking to secure equity investment. If you have any questions on the above, or more particularly, are considering raising equity investment please contact me or your usual point of contact at PKF Francis Clark.