Nearly two-thirds of the total amount invested by the UK’s private equity players and venture capitalists is currently estimated to be overseas.
Even given the UK’s uncertain economic and bank lending climate, some will find this surprising, writes Martin Flanagan.
But it certainly doesn’t faze Mark Florman, chief executive of the British Private Equity & Venture Capital Association (BVCA) for the past 18 months.
Florman believes a key path through the UK’s economic troubles – and past the threat of a “wasted generation” of 16- to 24-year-olds out of work – is to stay within the European Union, but also chase the business Holy Grail of “emerging markets” opportunities.
He says this is the only way for Britain to return to the economic growth rates of 2.5 to 3 per cent that he claims are necessary to avoid slipping living standards for the next generation.
“Students will be paying off our debts otherwise. Growth rates of 1 to 1.5 per cent won’t do it,” Florman, 54, says. “It is estimated that emerging economies like Colombia, Vietnam, Indonesia and Turkey will grow at 4 per cent over the coming years and we need to be part of that.”
It is not the customary interest in wider society one is used to hearing from an industry that is more associated with business investment, restructuring and returns.
But Florman also forcefully asserts that the much-maligned private equity industry can play a key role in the turnaround of Britain’s fortunes.
“The private sector creates everything. Without us it [a resurgent economy] is not likely to happen.”
The latest figures show BVCA’s 500 members invested 64 per cent of their funds in launching and turning around about 1,000 companies outside of the UK in 2011. The 2012 figures won’t be out until this spring.
That still left room for work on 6,000 new and existing companies in Britain, but Florman says overseas investment by his members is usually in far bigger businesses.
Florman says British business and his members can also learn from the greater social and community involvement of their counterparts abroad. It is not knee-jerk corporate piety, however.
In his early career, Florman may have pioneered interest rate swaps at Northern Trust Bank in Chicago, founded his own investment bank – Maizels, Westerberg & Co – and later joined Doughty Hanson, the London-based private equity group, where he spent many years.
But he also has formidable political and charitable “previous” on his CV. A former Conservative Party treasurer, he helped found a “build a school” programme in Africa in 2001, constructing more than 100 primary schools to date.
In 2009, he founded 8 Miles with Bob Geldof and backed by the World Bank, to invest $250 million in developing “impact capital” in African businesses.
In 2011, he was appointed by London mayor Boris Johnson to promote community development in the Stratford area of the city as part of the 2012 Olympic Games legacy.
He co-founded the Centre for Social Justice with Tory MP Iain Duncan Smith in 2004 to look at the causes of poverty in the UK – though this may take a controversial turn as the government presses ahead with welfare benefit cuts.
It is certainly an unusual mix for a career: head of a private equity sector at times vilified as glorified asset-strippers, while trying to promote equal opportunities for the poorest in societies.
However, Florman says: “I don’t think there’s a conflict between the two. Business is good for society as well as good for business.”
But he is no bleeding heart liberal, either. Take immigration, for instance. “There’s a healthy tension. To be blunt, we want well-trained people from all over the world who have something to add to the UK economy. There, I would loosen our immigration rules.
“I would counter that by strengthening the immigration rules on the large influx of less-productive people. We cannot get this economy working again if everybody thinks they want to live here because they have welfare. We need to be quite brutal about that.”
Florman is eloquent in defending the private equity sector against attacks a few years back on predatory capitalism.
“There was hysteria and misunderstanding,” he says. “We are industrialists who build better businesses rather than alternative financiers. You can paint us as very bad people but we are not.
“[Private equity] companies grow faster, create new opportunities and are more innovative. We are private owners representing pension funds, insurers, sovereign funds.”
He says it is venture capitalists and the banks who can get Britain’s biggest wealth creators, small and medium-sized companies, investing and growing.
However, Florman has sympathy with a public that has grown disillusioned with the financial and business world generally after a string of scandals, most notably the rigging of the Libor, the rate at which banks lend to each other. “Libor manipulation was appalling,” he says.
Even so, the BVCA boss – whose membership conducts a swathe of deals depending on whether the bank arithmetic stacks up – still warns against regulatory overkill.
He backs the Vickers report on banking reform and the current deliberations of the Parliamentary Commission on Banking Standards on the ring-fencing of high street retail banking from “casino” investment banking. But he says he is undecided whether a more formal split of the two is needed.
Florman – a Swede who is married with three daughters – says his basic outlook for British business is optimistic. “The City is highly respected in emerging markets and, with some repatriation of powers to Britain from the EU, we can have the best of both business worlds, trading both within the single market and with these so important emerging markets,” he says.
Born: London, 1958
Education: St Aubyns; Harrow; London School of Economics, degree in economics of industry and trade
Ambition while at school: Starting my own business
First job: Ski lift operator
Car you drive: Range Rover
Favourite music: Van Morrison
Can’t live without: My schools in Africa
What makes you angry: Indolence
The best thing about your job: Its diversity