Should UKFI invest in seed and early stage funds?
The UK government has created a new company, UK Financial Investments Limited (UKFI), which will manage the taxpayer funded re-capitalisation fund (£37 billion) for shareholding in banks and other financial institutions. UKFI will be managed on a commercial basis by a new arm’s-length company that will ensure that maximum long term value is derived from its investments, failure is minimised, and capital is freely flowing into the SME sector at the 2007 level. We present The Chilli perspective.
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In a sense, the UKFI mission is no different than that of any other VC or PE fund, so why restrict the fund to re-capping banks only? Why not re-cap all the ECFs (Enterprise Capital Funds) and quadruple their sizes and create a few more, mega-size, specialist early stage funds (can anyone remember how 3i was initially conceived and born)?
The new ‘mega- early stage VC funds’ can be achieved at a fraction of the £37 billion that has been allocated for rescuing mis-managed banking institutes. These new mega- funds can than be aligned with the Technology Strategy Board’s chosen industry sectors, RDA priorities and millennium goals.
The new mega VC funds will ensure diversity and range of both debt and equity capital allocation to small and medium size enterprises, forming the lynchpin for the new economic model. It will also open up the well-entrenched old boys’ network, under whose very watch the whole off balance sheet, financial alchemy and chicanery, asset bubble mess was created and nurtured.
UKFI’s overarching objectives will be to protect and create value for the taxpayer as shareholder, with due regard to financial stability and acting in a way that promotes competition. The new mega funds will meet these objectives, as currently there is very little competition between early stage funds due to past market failures. Some early stage funds should also be allowed to become SME lenders, under the SFLG schemes, thus creating more competition for the big banks.
UKFI will work to ensure management incentives for banks in which it has shareholdings are based on maximising long-term value and restricting the potential for rewarding failure. It will also oversee the conditions of the recapitalisation fund, including maintaining, over the next three years, the availability and active marketing of competitively-priced lending to home owners and small businesses at 2007 levels.
In addition to the recapitalisation fund and the credit guarantee scheme, the government will continue to ensure that all lenders do everything they can to support homeowners and small business during this period of financial market turbulence.
The government will be underwriting capital investments for RBS and, upon successful merger, HBOS and Lloyds TSB, totalling £37 billion. It will also oversee the conditions attached to subscribing to the government’s recapitalisation fund, including maintaining, over the next three years, the availability and active marketing of competitively-priced lending to home owners and small businesses at 2007 levels.
The government will not be a permanent investor in UK financial institutions and will over time seek to dispose of the investments in an orderly way, through sale, redemption, buy-back or other means, in accordance with the UKFI’s objectives.
UKFI board and structure
Membership of the UKFI board will comprise a private sector chair, three non-executive private sector members, a chief executive and two senior government officials from HM Treasury and the Shareholder Executive. Sir Philip Hampton has agreed to become the UKFI’s first chair and John Kingman will become chief executive. Both will take up these positions shortly. The remaining private sector board members will be recruited expeditiously. These roles will be filled by individuals of relevant commercial skill and experience to enable UKFI to best meet the objectives set out above.
Sir Philip Hampton was appointed chairman of Sainsburys in July 2004. He was group finance director of Lloyds TSB Group plc from 2002 to 2004, group finance director of BT Group plc from 2000 to 2002, and has held a number of other finance director positions. In the 2004 budget, Philip Hampton was asked to lead a review of regulatory inspection and enforcement. This review produced the Hampton Report, which informed the subsequent Regulatory Enforcement and Sanctions Act 2008.
John Kingman is second permanent secretary and managing director, public services & growth, HM Treasury. Previous roles in the Treasury have included managing director, finance and industry and director of the Enterprise & Growth Unit. John has worked on the Lex column of the Financial Times and in the group chief executive's office at BP. He has also been a board director of the European Investment Bank, a non-executive director of Framestore CFC Ltd, and a visiting fellow at the Institute of Political and Economic Governance at Manchester University.
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© Chilli Publishing Ltd 2008 |
14 NOV 2008 |
