Investing in the Regions – Why it Matters
By Gary Tipper, Managing Partner, Palatine.
The North is home to around 1.1 million businesses, more than 7.7 million jobs, and over 15 million people. Our economy is worth around £343 billion, 19% of the UK total, and if it was a standalone country, it would be the 27th largest in the world (and probably in President Trump’s cross hairs for a Greenland-style takeover bid!).
So, the size of the opportunity here is clear.
As a proud and passionate Northern investor, we believe that regionally focused firms have an important role to play in delivering the growth we all want to see.
We’ve obviously all heard of the Northern Powerhouse and its successor initiative ‘Levelling Up’. Despite the transience of the political cycle, I believe these labels were helpful in shedding light on the scale of the challenge in closing the productivity gap between the North and the South.
As ever, actions and deeds speak louder than words. It’s been encouraging to see the progress being achieved by the Northern mayors over the last decade as powers and resources have shifted from Whitehall to the regions.
While a devolved approach to political decision making maybe a relatively new concept, it’s not the case for PE. Palatine –and a select few other Northern firms –have been successfully raising funds and investing them without input from a London head office for several decades.
I believe being here, close to the advisers and the companies themselves, is the most effective way for a relationship and people-focused investor like Palatine.
It’s beyond doubt that Manchester is a key hub. In the 30 years I’ve been working here, there have been many changes as the private equity market matured.
As the market has evolved, it’s been pleasing to see other Northern PE houses establish themselves and raise significant funds in the regions, proving that like Palatine, you don’t have to be headquartered in London to be successful.
We have a strong financial and advisory ecosystem in the North. So much so that for the vast majority of deals, there’s no reason to go to London.
Where I think we need to be collectively better is telling a positive story about what PE delivers in the regions.
In the mid-market the driver for our returns is not leverage or financial engineering, but about investing in growing businesses. That means working with management teams to achieve operational improvements, deliver effective buy and build strategies and embed best-practice in terms of sustainability which in turn adds value and builds stronger regional businesses.
As an industry we are starting to increase awareness of what we call “positive equity”, but there are still misconceptions that regional mid-market PE firms are the same as the big European and US buyout houses.
This education piece is something the BVCA is in dialogue with the Treasury and we’re supporting locally too.
There is more work to be done, not least in explaining the threat posed by pension fund pooling. If – as has been suggested by the Government – local government pension funds are to be amalgamated even further, this will hinder their ability to invest in smaller UK focused funds of less than £500m. This would be a massive blow to the regional UK PE industry and as such to regional economies.
So, there’s a job to educate politicians and officials that what we, and other regional players provide is a key part of the funding ecosystem. Events like the Rainmakers conference are therefore a great opportunity to make our collective voice heard.
