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 were 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 regionally focused firms have an important role to play in delivering the economic growth that 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, although now largely obsolete as a result of the change in government, helped shed light on the scale of the challenge the UK faces 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 achieved by the Northern metro mayors over the last decade as powers and resources have shifted from Whitehall to Manchester, Liverpool, Leeds and Sheffield.

While a devolved approach to political decision making may be a relatively new concept, it’s not the case for private equity. 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.

Our experience in Birmingham is a good example of what I mean. We were always active in the Midlands and knew the key advisors, but it was only when we hired Richard Thomas, a well-connected local professional, and opened an office in the city that we started to see regular good quality deal flow. We’re really pleased we made the move there, as Richard and the team have done some great deals.

It’s beyond doubt that Manchester is a key hub for private equity. In the 30 years I’ve been working here, there have been many changes as the market matured and new firms arrived or were formed.

Looking back to the 1990s, you would often be competing with the likes of 3i, NatWest Ventures (now Bridgepoint), Barclays Private Equity (now Equistone), LDC, and sometimes even Permira. Now, many of these firms are not as active here, having often moved up to raise bigger funds and invest across Europe, not just the UK.

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 most deals, there’s no reason to go to London.

Where we need to be collectively better is telling a positive story about what the private equity sector 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 at Palatine call “positive equity” among political decision-makers. However, 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, which would be a massive blow to the regional UK private equity industry and as such to the 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 in a coherent and collaborative manner.