Expanding the UK government's corporate finance expertise
Treasury subsidiary UK Government Investments is an advisory body that deploys a finance, governance, law, accounting and education skillset based on public and private sector experience, to advise government departments on complex aspects of corporate finance, governance, asset realisation and, more recently, contingent liabilities. CEO Charles Donald talks about its work
After spending more than 30 years in investment banking, Charles Donald took on a new challenge in 2018. The vice-chairman and head of UK Advisory and Corporate Broking at Credit Suisse moved to UK Government Investments (UKGI). UKGI was set up as a wholly owned subsidiary of HM Treasury in 2016, to bring together the functions of the Shareholder Executive and UK Financial Investments (UKFI). It works across government departments, and with both the private and public sectors, advising on complex commercial tasks.
When he joined, Donald took on the role of head of its financial institutions group. Less than two years later, he was promoted to chief executive of UKGI, taking over from interim CEO Justin Manson, who also had a background in investment banking. Mark Russell had been the previous boss for seven years, until he left the post in October 2019 to become chairman of the Ministry of Defence’s buying agency, Defence Equipment and Support.
However, just five days after Donald was due to start his new role, the UK was plunged into (what is now known as) Lockdown 1.0.
“To be honest, I don’t feel I’ve really had the chance to do the job of CEO in a normal environment yet,” he says. “But I have had the benefit of being at UKGI since May 2018, so I knew the organisation and the people, and had learned a fair bit about how to work across government.”
Prior to joining Credit Suisse in 2009, Donald headed up UK investment banking at Nomura. Previously, he’d been in charge of equity research and then corporate broking at Lehman Brothers. Before that, he held roles at Donaldson, Lufkin & Jenrette and UBS.
“When I joined UKGI, it was a big change of culture. After 30-plus years in banking, I thought it would be interesting to do something a bit different. The public sector, public policy and government have always been of interest to me.”
Donald says that the combination of private sector and civil service backgrounds runs through the 130-plus staff who work at UKGI. “We work hard to blend those two skills, so we can provide the best advice to government departments. We second people from those two constituencies on something of a perpetual basis, to blend the experience of staff.”
The background of private-sector staff is in banking, consulting and law firms, and there are also ACA-qualified accountants. As well as advice and recruitment, there are secondments from big advisory firms. Then there are professionals with experience in the Treasury, the Department for Education, the Department for Business, Energy and Industrial Strategy (BEIS), the Cabinet Office and the Ministry of Justice.
“The corporate finance or governance advice we give needs to be robust, of course. But it also needs to be communicated in such a way that the government can make best use of it,” says Donald. To those steeped in the private sector, it is probably most akin to getting industry specialists to work alongside financial experts.
The UKGI team works across three main areas: corporate finance; corporate governance; and asset realisations. UKGI is also establishing a fourth discipline, to advise government on contingent liabilities. “This is related to its balance sheet review work, to help government inform its risk management and contingency planning – exposure on a contract it has, or there may be exposure on a contract the government has, or residual exposure as backstop guarantor,” says Donald. This new group was announced in the spending review in November 2020. That team will be built around a director, with secondments to the team, to ensure the same blended approach is taken.
UKGI helped the government assess the economic and fiscal risk that resulted from COVID-19, and the risks and impact of some of the measures taken last year – some of which have continued into 2021. It supported the Treasury with resource to help with the work it was doing in connection with the Bank of England’s commercial paper – the Covid Corporate Finance Facility scheme. The British Business Bank, where UKGI director Ceri Smith sits on the board, saw a significant expansion in its role through the crisis.
In the November spending review, the government announced greater resource to manage complex assets that may well be acquired as a result of intervention because of the pandemic. For instance, the Treasury has set up an advisory credit committee to advise on potential financial interventions, and UKGI has been helping on that exercise.
“There is a significant corporate finance element to the work on the various assets we have looked at with various government departments over the past 12 months,” explains Donald. UKGI worked together with the Treasury on one intervention in June 2020 – the £30m bailout support for Celsa Steel, the South Wales-based steel company.
One new asset that UKGI will look after is OneWeb. In July 2020, the government made a $500m (£364m) investment in the low-earth orbit satellite operator. OneWeb is based in the UK, but has substantial operations in the US. It had filed for Chapter 11 bankruptcy protection in the US in March 2020. The government’s bid (completed in November 2020) was as part of a consortium, with Indian billionaire Sunil Bharti Mittal also investing $500m. OneWeb plans to create a low-latency, high-speed internet service by 2022, but it will face stiff competition from other ventures led by the likes of SpaceX’s Elon Musk and Amazon’s Jeff Bezos. Neil Masterson, former co-chief operating officer of Thomson Reuters, has taken over as chief executive.
“The horizon on how long the investments are held for, and the different way of thinking around them, is a policy decision from government,” says Donald. “One thing we always say about UKGI is we don’t do policy, we act as a function. The government decides the policy and then we advise in support of whatever the policy is. So, if the government decides it’s going to have a long-term hold, or an arm’s-length body with a long-term role, then we can work on that basis. If it’s something short term, we work on a short-term basis. That is a difference to my previous job, where making the overarching decision was central to it.”
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