Peel Hunt’s Post

Transcript

I'm very pleased to have an opportunity to speak with Paul Stevens today. Paul is the head of Quoted Investments at the Business Growth Fund or known as BGF. Thank you very much for joining me today, Paul. Ohh. Thank you very much for having me, Charles. I really appreciate the invitation. So I have to admit, I didn't know a huge amount about BGF. So maybe we just started talking what BGF is before we get into the created stuff. Sure. So DGF was founded in 2011, was formed in the wake of the global financial crisis in 2008, Nine, and it was an initiative. Set up by the major banks in the UK to do more to support UK SME. So our shareholders are HSBC, Barclays, NatWest, Lloyds, Standard Chartered. And those five banks committed a very significant sum to invest in UK SME's initially entirely private companies and then laterally or since early 2014, 2015, we started investing in listed companies. And I'm sure it wasn't out of the goodwill of their hearts that they formed the BGF. Presumably there was some government involvement. In the creation of it and I saw Vince cables fingerprints over it. Yep, there were certainly some political sort of agitation at the time to support UK SME's and it was sort of under the Cameron government. The, the initiative got some momentum and took off. And was there a feeling that there was a funding gap back then, whatever it is now 13 years ago? And obviously that that we'd had the financial crisis. And so there was a real perception that smaller businesses didn't have anywhere to go and the banking system wasn't set up at that stage, I guess given that. They were having constraints on their own balance sheets. Absolutely. The, the funding gap was that the real sort of catalyst for the initiative in the 1st place and to BJ's purpose, which is, is to sort of try and fill that gap is, is what we've been busy doing ever since. And you know, I think the initial focus was on the sort of private markets as or smaller private businesses, as I mentioned. But in 2014, 2015, BF sort of made moves into investing in smaller listed companies where I think there was also a perception that a funding gap existed. And as I'm sure we'll come on to talk about. That funding gap has gotten noticeably bigger and over the last few years. And did the, did the banks come in equally they put in the same amount of money? And was it just their initial C capital or has there been any changes in the funding for the vehicle since then? So there are four banks that put in equal amounts and that was HSBC, Barclays, NatWest and Lloyds. And there's a smaller amount from Standard Chartered. But there's, yeah, a fair balance of of shareholders in terms of how much they own BGF. And the capital has been sort of drawn down in sort of phases. They're overall balance sheet now stands at 3 billion and the businesses as it stands today is now self funding. So it's got to maturity, which is really quite impressive actually sort of taking a step back and having joined halfway through the life of the business. Where it's got to now is is, you know, really impressive in in the context of what the original objective was, which is to support, you know, hundreds of companies, which is what GF has done and since it was founded and do so on a on what is now a self-sustaining basis. So we've had. Very significant exits through the from the investments that we made over the years. And those, those exits are what continue to allow us to fund and support other businesses that are seeking growth capital. And what I was reading is that over ��4 billion of funding over that period in over 500 companies, it's a pretty significant supplier of capital to small companies in the UK. Yeah, absolutely. So we're still investing in about 50 companies every year, new companies every year. So a company a week, which is pretty remarkable statistic and you know, it's a we're a volume. Investor say operationally be set up regionally. So we have 15 regional offices across the UK. So I think that kind of local presence is real hallmark of what we wanted to build or the the founders of the business wanted to build at the beginning. So having a locality and regional presence and being close to the businesses that we can back is is a really important sort of attribute of the investment proposition. So yeah, I think that is an interesting feature. So maybe just explain a little bit more about how the operations of the business work. There are three divisions. Within BGF, which aimed to support businesses at different stages of their growth cycle. So we have an early stage team which focuses on as the name suggests, earlier stage businesses and they are sort of pre profit and often there's a few examples of pre revenue businesses in there as well. And then we have what we call our growth division and that's what I think we would regard as being the sort of core engine of BGF. It's where the majority of my colleagues work and that's focused on investing in private companies that are profitable but are seeking growth funding. And I should highlight this point that you know. Differentiator for PGF alongside its unusual capital base is the fact that we're always minority investors. So we sort of cap out 40% in, in those private companies, which is a differentiator versus, you know, some other private equity funds. And then the third division is the quoted arm, which which I I head up, I should add there's probably a what we would regard as a fourth division, which is our sort of value creation team. So an important part of our investment proposition is to provide more than just capital, but also ways in which we can support those businesses once we've invested. With expertise and support to facilitate their growth for businesses that are perhaps going through events which they may not have encountered before. And the the main piece of the business I guess is the growth capital and I think you.