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Home » British Business Bank Reveal Fund Managers For Its New £130m Wales Fund

British Business Bank Reveal Fund Managers For Its New £130m Wales Fund

Fund managers for a new £130m fund from the British Business Bank, designed to back new start-ups and existing SMEs to scale-up in Wales, has been launched.

The economic development bank of the UK Government has confirmed that the equity element of its Investment Fund for Wales will be managed by Foresight Group with a mandate to make investments up to £5m per deal from an initial allocation of £50m.

It has also announced, as first revealed by the BusinessLive Wales last month, that the Development Bank of Wales, through its subsidiary FW Capital, will manage the fund’s £30m allocation to provide loans of between £100,000 to £2m. It runs the same funding pot for the British Business Bank’s recently launched £200m fund for the south west of England.

The small debt element of the Welsh fund, with a lending remit of £25,000 to £100,000 has been awarded to Midlands-based BCRS Business Loans with a £10m allocation.

In line with other British Business Bank funds, £40m is being held in reserve and will be released based on market demand. The bank is anticipating, although it has not set any targets, significant co-investment levels from the private sector.

Foresight manages the north of England and North Wales £58m Foresight Regional Investment Fund (FRIF), which is now in its realisation phase, as well as the active £65m FRIF III which is funded by the Greater Manchester, Clwyd and Merseyside pension funds. It also manages funds in Scotland, Northern Ireland and other regions in England.

In total it oversees £12.1bn of funds for some of the world’s largest institutional investors and private and high net-worth individuals.

Chief executive of the British Business Bank, Louis Taylor Chief executive of the British Business Bank. Louis Taylor, said: “This fund, which has been designed specifically for Welsh businesses, is intended to further address the challenges of access to finance and to provide opportunities for business talent in Wales to grow, to develop and to thrive.

“We have had a great reception from communities around innovation and scale-up companies in Scotland and Northern Ireland for the funds we have launched there and are expecting the same in Wales. We think there is great opportunity and we look forward to working with the three fund managers to deliver value for Wales.”

On private money investing alongside the fund, Mr Taylor said: “We haven’t set a formal target as there are changes in risk appetite in the private sector through an economic cycle, but we would have a strong expectation of significantly more than one times leverage from private sector money coming alongside the fund.

“This is based on the experience of other previous regional funds in England – Northern Powerhouse, Midlands Engine and Cornwall and Scilly Isles – where over a £1bn came alongside us. For the £400m Northern Powerhouse fund there is £600m of private sector alongside which is a £1bn impact.”

Although a ministerial decision, the chief executive said there is the prospect of all three elements of the Wales fund becoming evergreen so that when debt terms expire, or following profitable exit deals on equity, the proceeds are used to make new investments.

Mr Taylor said:“I have been quoted that the bank needs more permanence of capital and the ability to recycle it, but also the ability to allocate capital more strategically as well.

“So, I will definitely push for this fund to become more permanent, although not necessarily allocated in the proportions they have been allocated at the moment and not necessarily limiting Wales to the size it is in relation to other funds in the nations and regions. So, I can foresee for quite some time the need for government to be helping to pump-prime the market here.”

He added: “Part of the purpose of this money is not only to invest in companies, but to also demonstrate to the fund management community the ability to make good money, so we could help to catalyse other fund managers to come in. Ultimately you would hope that government wouldn’t need to be providing these funds and the private sector would have gotten the message that there is a great opportunity.”

On the rationale of start with a deployment of £90m from the £130m fund, which will be invested over the next five years, Mr Taylor said: “We have kept £40m back in reserve so we are able to allocate that at a later stage where the demand is greatest, so we have retained flexibility and will make sure that fund managers that need more allocation will get it well in advance of when they actually really need it.

“We have committed £130m to Wales with five years to invest it. If after then it has not all been invested it will be because there hasn’t been the demand for good opportunities, but that is not a situation we think will occur, but we will be reporting on this as we go along with a Welsh oversight board being set up too.”

On the bidding process to run the three elements of the Welsh fund he said: “We had good choices at every stage in each of the three areas, so this was not a shoe-in for everybody and a competitive process.”

On the fund’s debt element he said despite bank lending, there was a market gap. He added:“I am not saying the banks aren’t doing a good job or there isn’t good bank capacity , but there are quite a lot of companies that want to be able borrow on the basis of next year’s earnings rather than last year’s which is where the banks kind of look. It is a different perspective on debt investment and I think there is space for this kind of growth lending.”

For commercial reasons the bank is not disclosing the agreed management fees that the three providers will be able to draw down. However, on equity it will be in line with the industry standard of an around 2% annual management fee and 20% of any profitable returns from investment exits.

Mr Taylor said: “We were given overall account of the returns on the funds (three elements) and have been keen to ensure that offers value for money and they (fees) are not outside market norms. It was a competitive process so we were able to get what we consider to be value for money for the taxpayer.”

There are no diversity or ethnicity targets on deployment of capital to ensure female owners or those from Black, Asian and Minority Ethnic (BAME) backgrounds are at least proportionately funded.

The chief executive said:“In the selection of fund managers the diversity of the team undertaking the investments was absolutely a factor we considered, and while we are not setting targets to fund managers in relation to gender and ethnicity of the businesses they invest in, we do require them to report to us on the diversity. So, they know we are keen to ensure that disadvantaged characteristics get a fair crack of the whip on this money.”

On the fund being used to attract companies into Wales from other parts of the UK, and potentially overseas, he said: “I am not sure it is going to be the determining factor, but companies that are determined that they want to come to Wales and need equity investment then it is totally open for them to apply for that… but we are not seeing it as a regional development agency fund.”

As part of pension reforms, aimed at getting pension funds to deploy a further £75bn to back high-growth potential private UK firms by 2030, the Chancellor in his Autumn Statement yesterday announced a new Growth Fund within the British Business Bank.

The fund will give pension schemes access to the bank’s pipeline of opportunities. While details need to be worked through it could see a potential opportunity for new capital being allocated to existing funds, including the new Welsh fund.

Firms could potentially be in receipt of both debt and equity investment from the fund.

Welcoming the launch of the fund, Secretary of State for Wales, David TC Davies, said: “I’m delighted to see the UK Government backing this £130m Investment Fund for Wales. We are a nation of entrepreneurs and this fund will provide much needed finance for start-ups to turn their great ideas into a business. The fund will also support smaller businesses who need support to expand and grow.

“This new source of financing will help the UK Government deliver on our priority of creating jobs and driving prosperity in Wales.”

Picture caption: Back row (left to right): Stephen Galvin, fund principal, Foresight; Bethan Cousins, new business director, FW Capital, John Cordrey, principal, Foreight, Rhodri Evans, FW Capital fund manager and Steve Deakin, chief executive, BCRS.Front (left to right) Mark Sterritt, director, British Business Bank, Bethan Bannister, senior investment manager, British Business Bank, David Tindall, senior investment manager, British Business Bank, Caroline Dunn, finance director, BCRS and Claire Alvarez, partner, Foresight.