Launch of £400m fund heralds ‘pan-Northern collaboration’

The £400m Northern Powerhouse Investment Fund has officially launched today as part of plans for a “pan-Northern collaboration”.

Initially announced in November 2015 and driven by the Sheffield-based British Business Bank, it covers 10 Northern local enterprise partnerships, but the North East will have a separate fund of £140m.

The NPIF combines capital allocated to the 10 LEPs in the North West, Yorkshire and Humber and the Tees Valley by the European Regional Development Fund (ERDF), a loan from the European Investment Bank (EIB), funding from the Department for Business, Energy and Industrial Strategy (BEIS) and an additional loan from British Business Finance Limited, a British Business Bank group company.

It launched today with the aim of boosting the North of England’s economy following the BBB’s Spotlight report, which said that the North contributes £350bn a year in GDP, close to one fifth of the UK economy.

NPIF will provide funding to fund managers who will offer Microfinance (£25,000 – £100,000), Business Loans (£100,000 – £750,000) and Equity Finance (up to £2m).

Grant Peggie of the British Business Bank told TheBusinessDesk: “What we’re looking for is SMEs with growth potential that are base in our geographical remit.

“We have three different types of funding available on the NPIF. Small loans will be up to £100,000 depending on needs and the equity fund will be up to £2m – these could be university or larger company spin offs – innovative, high growth companies.

“The market is heavily skewed towards London and the South East,” said Peggie. “The Northern Powerhouse Investment Fund will also attract other private investors to the North, pockets of which in Leeds and Manchester are attracting private investment but we need to stretch that.

“We recognise that it can be easier to find investments in big cities. High growth cities exist across the UK, and access to finance isn’t something that should stop growth.”

The 10-year fund will have sustainable economic growth criteria, job creation targets and prove how it supports innovation in companies and how it invests in the area as a whole.

Peggie said the bank was “quite relaxed” about the North East having a separate fund, explaining that because of a “separate history”, the North East LEP had decided to go its own way.

The 10 remaining LEPs were able to work together which Peggie said was a “very positive thing”.

It has not all been plain sailing however following the decision to leave the European Union, which contributes to the fund.

“When we met on 24 June, people were concerned and didn’t know what was going to happen in terms of European funding, specifically relating to the NPIF,” said Peggie.

“What encourages me is the way the Northern powerhouse leaders in the LEPs and local authorities and private sector are coming together. This isn’t just something the Government needs to do and make happen.

“Announcements in the Autumn Statement will give leaders more opportunity for independent action. It’s starting to happen from a government perspective and people in the Northern Powerhouse are realising that this is a real opportunity.”

Keith Morgan, chief executive at British Business Bank, said: “The North of England has a long and proud history of driving global innovation and economic progress. The region has more high-growth businesses than London and, at close to one fifth of UK GDP, is larger than the economies of Greece, Denmark, Austria and Belgium.

“The region has enormous untapped economic potential that can be realised by improved funding options and opportunities. The Northern Powerhouse Investment Fund represents a co-ordinated policy approach to help realise this potential across the North.”

The official launch of the NPIF coincided with the announcement by national investment group Mercia that it had been successful in its bids through its wholly-owned subsidiary Enterprise Ventures to manage two of the BBB’s new NPIF funds.

The group has secured £108.5m across two mandates – a £57.5m equity fund and a £51m debt fund.

The funds will be deployed via Mercia’s North of England offices, which will be focused primarily on investing in SMEs in Yorkshire, the Humber and Tees Valley regions, where the group already has a successful track record of supporting start-up and later stage companies that have high growth potential.

The new fund mandate wins represent further strategic progress for Mercia. As a result of the two awards, Mercia has increased its third-party funds under management by nearly 50% to over £336.5m, which over time will further increase the pipeline of potential direct investment opportunities for the group.

Dr Mark Payton, chief executive of Mercia Technologies, said: “We are delighted that, in a highly competitive field, the group has been selected to manage two Northern Powerhouse Investment Funds.

“The new funds are strongly aligned with Mercia’s ‘Complete Capital Solution’ and our strategic aim to invest in the UK’s underserved regions, supporting the next generation of businesses with high growth potential, where we are already very active.”