Scotland has a lot to offer businesses and investors: a dynamic community of entrepreneurs, a highly skilled workforce, geography that could have been tailor-made for the clean energy industry... and yet there is more to do to fully exploit its potential for economic growth. In mid-October, senior people from government, finance, business and investment came together at Scotland's first Global Investment Summit to share ideas, insights and solutions.
It was convened by The Lord Mayor of London and SFE (Scottish Financial Enterprise), the Board of which includes one of our Partners – the head of our Pensions team, Louisa Knox. Louisa attended the event along with several others from the firm (Hamish Patrick, Partner and Head of our Financial Sector team; Tom Swan and Donald Smith, both Partners in Corporate Finance; and Peter Alderdice, Director, Banking and Finance). Afterwards, Louisa described the event as, "a phenomenal success. Drawing together so many people from around the globe, and allowing investee corporates to showcase what they have to offer, was a unique opportunity. There was a real buzz... you really felt that things were happening, and I'm confident that some businesses that were looking for investment will have found the right contacts."
A quick look at the list of attendees shows that this was a serious event: Scotland's First Minister John Swinney; the Deputy First Minister Kate Forbes; Andrew Bailey, Governor of the Bank of England; Alastair King, the Lord Mayor of London; the Chief Executive of NatWest Group, Paul Thwaite; the Chief Executive of ScottishPower, Keith Anderson... and numerous other leaders in their fields. Many spoke highly of Scotland's strengths, and all were keen to contribute to helping Scotland to boost its economic growth.
Louisa came away encouraged by the ambition and enthusiasm on all sides: "It was really interesting to see the extent of the positive appetite to do business in Scotland. Some of the speakers had opened or expanded businesses here, and they talked about what had attracted them to Scotland. And, of course, about the hurdles as well."
So, what exactly is holding businesses back? The situation is complex, of course, and opinions differ on the fundamental causes, but it is widely acknowledged that not enough capital is reaching the ambitious businesses that need it. This applies to all of the main ways that businesses raise money, but venture capital attracts particular attention because, generally, that is the route that most growth-stage businesses need to use.
The Summit looked at three sectors in particular: financial services (particularly fintech), energy, and life sciences. While there is a lot of common ground between the three, there are differences too. For example, whereas the fintech and life sciences businesses that are looking for investment tend to be in the earlier stages of their development, in the energy sector many are more mature businesses, including those who want to re-focus from oil and gas to renewables. This is a relatively small change in many cases: drilling into the seabed to extract oil uses a lot of skills that are transferable to the construction of wind turbines, for example. But it requires investment.
Most developed economies are currently wrestling with the same sort of problems to some extent. The most obvious exception has been the USA, where higher liquidity, deeper capital pools and a greater willingness to invest in equities and riskier assets have not only led to a thriving venture capital ecosystem over many years, but also helped to make US stock exchanges a more attractive option for some IPOs. Some UK-based businesses have responded by doing 'The Delaware Flip' early in their lifecycle – establishing a holding entity in the USA. But while this can be an effective way to attract more attention from US investors, it is not an instant cure-all that removes the need for all the other things that investors look for such as an innovative idea, a solid business plan, and a credible management team. Often, the benefits for investee businesses do not justify the costs, which can be considerable.
Some observers point out that the US tends to be less regulated, and conclude that slashing regulation here would encourage investment, but Louisa says that this may be misguided: "This was discussed at the Summit, and while most businesses would probably prefer to give less of their focus and admin resource to regulatory matters, I didn't get any sense that this was an overwhelming priority, any more than other economic levers. Scotland – and the UK – remains a stable place to do business."
Other ideas that have been in the air for a while are aimed at bringing personal investors into the mix. For example, restricting cash ISAs so that equities become more attractive by comparison, or encouraging pension funds to invest in riskier assets. Louisa sees challenges here too, particularly in the latter case: "If you believe that we, as a nation, tend to be more risk-averse than other overseas savers or investors, that's a deep-rooted difference that can't be changed overnight. In any event, pension fund trustees are legally obliged to act in their members' interests, so they would need some form of legal protection before taking on more risk. And even if members are given the opportunity to choose whether or not to do this in a DC arrangement, care would need to be taken to be sure that they had everything they needed to make a fully informed decision. We are seeing change already in the pension space, with the Mansion House Accord signed up to by (as of now) seventeen workplace pension providers. They have pledged to invest 10 percent of their workplace portfolios in assets to boost the economy, and at least 5 percent will be ringfenced for the UK."
One thing that could certainly be very beneficial was embodied by the event itself: collaboration. John Swinney's closing keynote address made it clear that Scotland was, in his words, "open for business." The First Minister highlighted the newly launched Investment Scotland online portal, which gives international investors "a clear view of the entire pipeline of investment opportunities available in Scotland." He pointed out that the government's ten-year life sciences strategy was "co-produced with industry leaders" and built on "partnerships between business, academia and government." He also highlighted several recent successes, such as BlackRock's new Edinburgh office, and the fact that 70 per cent of Scotland's electricity now comes from renewable sources, double the figure just ten years ago.
SFE's Chief Executive, Sandy Begbie, also talked about the power of co-operation: "This summit is exactly what happens when business plays a leading role and collaborates with government, investors and regulators for the common good. It builds on Scotland's rich financial heritage and shows how a robust, world-class financial services sector underpins every other part of our economy, from fintech and energy to life sciences."
Louisa believes that the Summit and similar events can address another pressing need – to increase awareness of what Scotland has to offer. "The attendees came from all over the globe: some were very familiar with Scotland and what's available here; others were surprised to discover the depth, variety and quality of projects that are running here. Similarly, I met some people who had started their careers here, and others for whom it was their first time in Edinburgh. For those unfamiliar it's definitely put Scotland, and the opportunities here, on the map."
With so many ambitious businesses in Scotland, and significant pools of capital around the world, the opportunity is clear. Events like the Global Investment Summit show that ambition, collaboration and communication will be a key part of exploiting it.
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