Tapping into Patient Capital requires a patient approach (and a bit of family office capital)

22 December 2016

When reviewing the long term investment requirements of UK companies, there's an important source of capital, for both mid-market (and big ticket) M&A and organic growth in family capital, deployed by family offices, and UHNWIs.

Patient Capital - what a phrase. Since the Kay Report was published in 2012 and recommended less short term, quarterly market reporting, less in-and-out fund management shareholding and “A culture of trust relationships, which is actually central to making financial services work”, the term has been a regular presence in the mergers & acquisition and investment world.

What does it actually mean? Patient Capital is often seen as the opposite of “quarterly capital”, or short term results driven investment. Across developed capital markets, investment through funds is often brutal and public results driven rather than a five year plus view on what a company will achieve and how it will grow. In this context, the government is undertaking a review led by Sir Damon Buffini to look into the capital source as a way to invest in the long term growth of companies and industries. Not much is known about the review or what form it will take. However, for those of us in the family offices-as-investors world, one thing stands out - there’s no patient capital like family capital.

Family capital can often transcend that quarterly or three - five year horizon and look more like the “forever” period (though it’s not always quite as extreme as that). It can be flexible, come with less prescriptive conditions, and come embedded with business DNA.

There are other forms of Patient Capital of course, such as Sovereign Investment Funds (SIFs) and long term equity investment funds. However these tend to (though again, not always) write bigger cheques for mature and listed companies, or are hamstrung by their investment mandates, which can often be fairly prescriptive. SIFs and Family Offices together, interestingly, could be a very powerful investment syrup.

For faster growth and international expansion funds of £50-250m+ there’s often a clear choice to be made by an entrepreneur or corporate: equity markets or private placements. Equity markets are tricky, reporting requirements, rules and regulation, costs listing and underwriting and so on. Private placements can be a little more straightforward.

You must spend time and money in order to find the right investor(s), but helping corporates connect with family capital has, to put it very simply, two great advantages that we’ve seen:

1. Expertise. Often the family has been very successful in the very sector it is investing in and this experience the connections it brings are valuable, along with mentoring and even free digs in the various office blocks they might own.

2. Long(er) horizons. This doesn’t, to be clear, mean that family offices are not-for-profit and will wait forever for positive results and cash flow. It does mean they are often not quarterly reporting junkies or 3-5 year horizon investors. They are indeed prepared to invest for growth, for the long term. Due to their own DNA, they know businesses take time to build and are prepared to be in it for the long haul.

It’s clear from recent announcements that the government aims to make it a priority to help smaller and medium enterprises grow in the UK, which is welcome. Previously mooted ideas such as the business bank and other government funds are making way for private capital which for any free market economy is even better news.

Looking ahead, Sir Damon could first knock on the door of the very entrepreneurs and business families that helped grow the last generation of big businesses to help grow the future ones. London and Britain are a family office hub, a great advantage held over Frankfurt and Dublin and he’ll have no shortage of expertise and advice to hand in order to tap into patient capital. There's certainly no one better to lead the commission.

All it requires is a bit of patience and perseverance.

For more information or to discuss, please contact Omar Butt on Tel: +44207 213 8164 or Email: omar.m.butt@pwc.com

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