By putting the UK’s collective savings to work, a Covid-19 fund would help recapitalise the economy and support businesses, argues Anne Richards.
Fidelity International’s chief executive Anne Richards has called for the asset management industry to help support businesses suffering in the pandemic through the creation of a new Covid-19 retail investment fund.
This equity investment product could take the form of an open-ended investment company (Oeic) or an investment trust, perhaps offering tax incentives like an Isa, Richards suggested. It might even work as a sovereign wealth fund or a new form of co-operative or mutual society. The idea would be to “put the UK’s collective savings to work” while allowing people to participate in the economic recovery post-coronavirus.
She notes that the response to the coronavirus crisis so far has been focused on providing emergency liquidity to businesses in the form of loans and guarantees. While this is “an effective quick fix” to immediate liquidity problems caused by the shutdown of large parts of the economy, it is only a short-term fix, Richards says.
If businesses cannot afford to repay these emergency loans, a short-term cashflow problem becomes a long-term insolvency problem and companies go to the wall. “Lots of companies, even entire industries, are facing a very uncertain future, with their very survival hanging in the balance,” she notes in a LinkedIn post. But the asset management industry can help find a solution.
A Covid-19 fund would help recapitalise the economy and support businesses. It could follow the example of the Industrial and Commercial Finance Corporation which the Bank of England set up following World War II, which eventually evolved into 3i, a private equity investment trust.
“It invested in companies that had no access to long-term equity capital and it did very well,” says Richards. “That sort of multi-decade success offers a solid model for steering an economy through a period of devastation.
“Learning from this example, a domestic sovereign wealth fund, backed by the weight of the Treasury, could take equity stakes in UK businesses deemed viable in normal economic conditions, but that are struggling in the current environment.”
The current crisis should be seen as an opportunity for innovation and for the asset management industry to apply all its financial tools to create a more sustainable system, Richards adds.
Richard Cole, fund manager at Future Money, says the Fidelity chief raises some interesting points.
“With regards to the sovereign wealth fund idea, we have perhaps already seen the beginning of such a plan with the government’s UK innovative start-up bailout plan, which issues state-backed loans that can be converted into equity. In terms of whether this idea will spread to wider sectors of the economy, this is a possibility,” he says.
“The vast majority of economic policy so far has been at maintaining businesses through lockdown, but once we are able to move past this, then it appears likely that the government will maintain its highly interventionist nature and so there could well be a space for the government, or a newly created public fund, to take stakes in greater chunks of the private sector.”
AJ Bell’s head of active portfolios, Ryan Hughes, adds that innovative solutions will be necessary if businesses in the hardest-hit sectors are to survive. “The full impact of Covid-19 is yet to be seen, but it is clear that many business in certain sectors such as leisure and retail are facing a situation that they never envisaged,” he says.
“Creative solutions are going to be needed if these businesses are going to survive, and some kind of investment fund to mobilise additional capital is an interesting idea. The example of what is now 3i, which was set up to help companies post-World War II, potentially provides a blueprint for what could be considered as part of the response to today’s crisis.”
Sophie Kennedy, head of investing at EQ Investors, adds: “It’s certainly an interesting idea and what’s becoming clear is that in a post-Covid world we’re going to need an ambitious strategy to help guide choices.
“As a B Corp [a US Benefit Corporation that voluntarily meets higher standards of transparency, accountability, and performance], we’ve been advocating a change in attitudes towards governance and sustainability. Businesses must instil a culture which encourages people at all levels to make the right decisions. Now could be the perfect time.”