Beneficial public and private partnerships

This week’s Big Deal is an interesting collaboration between a government-sponsored venture investment programme* and corporate venturing to support the transfer of clean technology from the US to the UK.

Balfour Beatty, a UK-listed infrastructure construction company, is using its eponymous corporate venturing and public-private partnerships unit to provide half of a £24.8m ($40m) equity investment to form a local start-up to use recovered wood as a source of energy to homes.

The money will help build a 10.3MWe recovered wood gasification venture in the UK expected to start producing electricity in 2016 by using gasification technology from US-based Nexterra to convert recovered wood into a gas which is used to raise steam to be passed through a turbine.

Balfour Beatty Investments is investing £12.4m in Birmingham Bio Power. The other half is coming from UK Waste Resources and Energy Investments, a venture capital fund managed by Foresight Group and backed by the UK Green Investment Bank (GIB), a for-profit bank created and funded by the government in November last year but managing £3.8bn independently of it.

GIB is indirectly investing £6.2m through the Foresight-managed fund and also directly investing £12m by way of preferred loan stock in Birmingham Bio. Fund managers Eternity Capital Management and GCP Infrastructure Fund (GCP) are investing the final £6.2m and £11m, respectively, as preferred loans to take the total to £47.8m.

And it is the collaboration between such disparate investors, as well as the business challenges in building the partnership to set up the power plant, that signals how governments are regaining confidence they can convene and shape their economies through investment by learning lessons from the past.

While it is now more than six years after the credit crunch started a global financial crisis and the slow grinding out of political-inspired reforms are starting to take shape.

In the US, the Volcker reforms to try and limit systemic risks from banks’ proprietary trading have this week been passed, although without reinstituting the Glass-Steagall Act that separated investment from commercial banking after the Great Depression.

The passing of the Act named after legendary US central banker Paul Volcker, who helped set off the changes to pull America out of 1970s stagflation, signal a re-emergence of a sense that governments can positively impact economies rather than leave more to markets through liberalisation.

Last month, Peter Mandelson, a UK-based politician credited as an architect of the local Labour party’s election and policies from 1997, said that then people generally thought “markets would work their magic” and societies benefit through higher tax receipts. But, as Liam Byrne, Labour Member of Parliament for Birmingham Hodge Hill and shadow minister for business, innovation and skills, in a comment for local news provider Evening Standard said: “It didn’t work out like that.”

The rapid growth of offshore limited liability partnerships – in which the UK has been a primary player judging by analysis from magazine Private Eye, and where the British Virgin Islands can now be the sixth-largest source of foreign direct investment in the world with $65bn per year, according to news provider Forbes using United Nations figures – as part of a globalised financial world has helped break the link of individual and corporate returns and their purposes. US-based trade body National Venture Capital Association (NVCA) in a newsletter article on the increasing number of corporate forms that blur the line between for- and non-profit organisations by law firm Morrison & Foerster.

Instead of “destroying” the state, or building a “big” one, Byrne called for a “smart” one to deliver “high-paid, high-value-added jobs and a better escalator up to those jobs for everyone” through greater training, innovation and funding of new investment preferably from local providers of capital.

This mantra has been repeated by other politicians round the world for years and is becoming increasingly strident. However, the administration of how to actually provide this training, innovation and investment is more challenging.

That the GIB has formed such an extensive partnership across boundaries and with different corporations and investment groups with varying objectives and approaches to clean-tech is positive.

*The publishing company behind Global Corporate Venturing and Global University Venturing will be launching a third title, Global Government Venturing, next year.