UPDATED: Lord (Jim) O’Neill, a former Goldman Sachs chief economist and one-time Treasury minister, has called for a £25bn patient capital fund to recapitalise firms and promote new business development.
Writing on website The Article, Jim O’Neill – who coined the term BRICs for the world’s fastest-growing new economies – warns that simply piling on debt through coronavirus business interruption loans or bounce back loans may solve a short-term cash flow crisis, but that will just intensify and accelerate shortfalls in future cash flows. Business failures will accelerate, he warns.
And just keeping businesses alive does nothing to encourage the inevitable transition to a zero-carbon based economy and all the research and digitisation businesses will need to meet the challenge, he writes.
Jim O’Neill suggests that the £25bn recapitalisation fund, which would be a national fund but with strong regional delivery, could take preference shares linked to future performance that could be bought back over a 10-year period.
The fund would be wholly owned by the public sector but would be led by the private sector, which would be free to act and invest on where best to invest.
“You convert into preferred equity on the assumption that some of these companies have a good future, then flog them — à la Margaret Thatcher — over time,” O’Neill told the Financial Times.
O’Neill suggests the Industrial and Commercial Finance Corporation (ICFC), established in 1945 in the aftermath of the Second World War, as a model. The ICFC, which later became 3i in the later 1980s, became the single largest provider of growth capital in Britain.
Separately, the Business Growth Fund, has also been trying to get a 3i-style patient capital fund off the ground, encouraging pension funds to invest in scale-ups and growth businesses.
“Unless normality in the way we knew it several weeks ago returns any time soon, it is clear that the challenges for businesses will become terminal: too many will fail, unemployment will increase, possibly to unprecedented levels, and the capacity for the national recovery will be eroded,” writes O’Neill with Sir Howard Bernstein, former chief executive of Manchester city council. “This could have a potentially catastrophic impact on the social and economic fabric of the country.”
While many companies that fail will have been weak before the virus crisis, those that were viable also face uncertainty, says O’Neill.