Broadening the UK government’s expertise in corporate finance
The Treasury’s subsidiary, UK Government Investments, is an advisory body which deploys a skill set in finance, governance, law, accountancy and education based on experience from the public and private sectors, to advise government departments on the complex aspects of corporate finance, governance, realization of assets and, more recently, contingent liabilities. CEO Charles Donald talks about his job
After spending more than 30 years in investment banking, Charles Donald took on a new challenge in 2018. The Vice President and Head of UK Advisory and Corporate Broking at Credit Suisse joined UK Government Investments (UKGI). UKGI was created as a wholly owned subsidiary of HM Treasury in 2016, to bring together the functions of Shareholder Executive and UK Financial Investments (UKFI). He works across government departments and with the private and public sectors, advising on complex business tasks.
Upon his arrival, Donald assumed the role of Head of the Financial Institutions Group. Less than two years later, he was promoted to managing director of UKGI, succeeding interim CEO Justin Manson, who also had an investment banking background. Mark Russell had been the former boss for seven years, until he quit in October 2019 to become chairman of the MoD’s procurement agency, Defense Equipment and Support.
However, just five days after Donald was due to start his new role, the UK was thrust into (what is now known as) Lockdown 1.0.
“To be honest, I don’t feel like I’ve really had a chance to do the job of CEO in a normal environment yet,” he says. “But I’ve had the benefit of being at UKGI since May 2018, so I knew the organization and the people, and had learned quite a bit about working in government.”
Prior to joining Credit Suisse in 2009, Donald led UK investment banking at Nomura. Previously, he was in charge of equity research and then corporate brokering at Lehman Brothers. Prior to that, he held positions at Donaldson, Lufkin & Jenrette and UBS.
“When I joined UKGI, it was a big culture change. After more than 30 years in the banking industry, I thought it would be interesting to do something a little different. The public sector, public policy and government have always interested me.
Donald says the combination of private sector and public service backgrounds runs through the more than 130 staff who work at UKGI. “We work hard to combine these two skills, so that we can provide the best advice to ministries. We second people from these two constituencies on a somewhat perpetual basis, to blend the experience of the staff.
Private sector staff are trained in banking, consultancy and law firms, and there are also ACA-qualified accountants. In addition to consulting and recruiting, there are secondments from large consulting 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 Department of Justice.
“The corporate finance or governance advice we give has to be robust, of course. But it also needs to be communicated in a way that the government can make the best use of it,” says Donald. For those entrenched in the private sector, it’s probably more like having industry specialists work alongside financial experts.
The UKGI team works in three main areas: corporate finance; corporate governance; and realizations of assets. UKGI also establishes a fourth discipline, to advise the government on contingent liabilities. “It relates to its balance sheet review work, to help the government inform its risk management and contingency planning – exposure on a contract that it has, or there may be exposure on a contract that government has, or residual exposure as a backing guarantor,” Donald says. This new group was announced during the spending review in November 2020. This team will be built around a director, with secondments across the team, to ensure the same mixed approach.
The UKGI has helped the government assess the economic and fiscal risk arising from COVID-19, as well as the risks and impact of some of the measures taken last year – some of which have continued into 2021. It has supported the Treasury with resources to help with the work it was doing under the Bank of England’s commercial paper – the Covid Corporate Finance Facility scheme. The British Business Bank, whose UKGI director Ceri Smith sits on the board, has seen its role expand significantly during the crisis.
During the November spending review, the government announced increased resources to manage the complex assets that may well be acquired as a result of a pandemic response. For example, the Treasury set up a credit advisory committee to advise on potential financial interventions, and UKGI assisted in this exercise.
“There is a significant element of corporate finance in the work on the various assets that we have been reviewing with various departments over the past 12 months,” says Donald. UKGI worked with the Treasury on an intervention in June 2020 – the £30m bailout support for Celsa Steel, the steel company based in South Wales.
A new asset that UKGI will take care of is OneWeb. In July 2020, the government invested $500m (£364m) in the low Earth orbit satellite operator. OneWeb is based in the UK, but has significant operations in the US. He had filed for Chapter 11 bankruptcy protection in the United States in March 2020. The government’s bid (completed in November 2020) was part of a consortium, with Indian billionaire Sunil Bharti Mittal also investing 500 millions of dollars. OneWeb plans to build a low-latency, high-speed internet service by 2022, but it will face stiff competition from other companies led by SpaceX’s Elon Musk and Amazon’s Jeff Bezos. Neil Masterson, former co-chief executive of Thomson Reuters, has taken over as chief executive.
“The horizon on how long investments are held and the different way of thinking around them is a political decision by the government,” says Donald. “One thing we always say about UKGI is that we don’t do politics, we act as a function. The government decides the policy, and then we advise in support of whatever policy. So if the government decides that 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 short term. This is a difference from my previous job, where global decision-making was essential.
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Read the full article from the May 2021 edition of Corporate Financier. Exclusively for Corporate Finance Faculty Members and Online Faculty Members who can access our highly regarded magazine and extensive archive presented by the ICAEW Corporate Finance Faculty.