22 February 2023 British Business Bank's goal to become the UK's sovereign wealth fund

British Business Bank's goal to become the UK's sovereign wealth fund​

What do you need to know this week?

The Financial Times ran an article on Tuesday covering the ambitions of the new CEO of the British Business Bank (BBB). Specifically, Louis Taylor wants to turn the BBB’s venture capital arm into the UK’s leading “sovereign growth fund” (SGF).

An SGF is a kind of sovereign wealth fund (SWF), which refers to an investment fund which invests a nation’s surplus reserves and uses the returns for the benefit of the nation and its citizens. SGFs specifically invest in early-stage businesses and are similar to venture and growth equity funds that raise capital from private investors, with the exception that the government is the fund’s ultimate shareholder.

An SGF is one way that governments can stimulate enterprise and prioritise particular industries and technologies without becoming direct shareholders in private companies.

The BBB is a government-owned commercial bank whose purpose is to connect smaller businesses with financing. Its venture capital arm, British Patient Capital, began in 2018 when the government injected £2.5bn as part of a ten-year mandate to invest in British companies with high growth potential.

British Patient Capital is currently the UK’s largest domestic investor in venture and growth opportunities. It manages both a direct investment funds and a co-investment programme investing alongside private capital funds.

Why is this important for your interviews?

Sovereign wealth funds like GIC (Singapore), PIF (Saudi Arabia), and the Abu Dhabi Investment Authority (UAE) have in aggregate trillions of dollars’ worth of capital at their disposal and are increasingly dominating global investment markets, commonly competing with traditional private capital funds like Blackrock, Carlyle, and KKR on big-ticket investments.

Commentators have previously pointed to the fact that the UK lacks a sovereign wealth fund of its own as something that should be remedied. Creating a competitive UK SWF or SGF could help stimulate the British economy by both directly investing in growing businesses, as well as attracting private capital investment. This in turn would be a boon for legal and financial advisers instructed by an SGF and its private capital co-investors and the target businesses.