Document details

Summary

Aims

The main objectives of the Review were to conduct a review of the current market conditions in which the SLF operates and assess whether there continues to be a rationale for intervention through the SLF in its current or amended format; consider evidence of any market adjustment since the introduction of SLF; assess the net economic impact generated Fund in period to 30th September 2016; review the commercial performance of the Fund; assess the value for money.

Methods

The methodology consisted of a review of information on the Fund and its client business performance; consultations with Stakeholders, Limited Partners, Maven, SLF client businesses and SE Account Managers; a review and analysis of data and opinion on the market for finance for Scottish SMEs.

Findings

SLF has addressed a market failure and assisted in establishing the potential scale of demand for the Fund at around £10m per year. The volume of lending has been behind projections based on market research and expectations of stakeholders and LPs. This is attributed to an innovative product trialling in a niche market in challenging economic times. There is a continuing but lower level of demand for a Mezzanine Finance product at a rate of c£10m per annum. There is limited evidence, however, of market adjustment to deliver commercial provision of a similar Mezzanine finance product in the Scottish market. There are significant costs attached to managing a Fund like SLF which suggests that it might be difficult for a lower value Fund operating at £10m pa to cover management costs and provide a commercial return to investors. The economic impact of the SLF to date has been in line with expectations, given the nature of the intervention and is based mainly on time additionality. SLF has been shown to address a market need and facilitate economic development. Rapidly growing businesses and effective entrepreneurs require access to a range of financing options as they evolve. The facility to provide a mezzanine finance solution should be retained as part of the Scottish Investment Bank (SIB) toolkit of investment support.

Recommendations

It was recommended that SIB continues, with others, to promote the concept and facilitate the provision of mezzanine finance in Scotland as an important contributor to the progression and development of rapidly growing businesses. In relation to stand-alone investment and loan funds, it was recommended: research into the anticipated scale and demand for the fund product considers the potential for economic shocks and makes provision in the structure, management, and investing principles of the fund to respond to such shocks; the relationship between scale of the fund, investment run rate and costs of third party fund management should be fully reflected in the design and establishment of any fund; provision for legacy management of investments or loans, beyond the investing/lending phase of the fund, should be fully reflected in assessing management costs and long term returns to the fund; and the fixed costs of individual investment/loan due diligence and ongoing management is proportionate to the scale of investments and loans, this is likely to require a minimum scale of investment or loan value by the fund, unless arrangements can be put in place to streamline approval and ongoing management costs for smaller loans/investments.

Record metadata

Documents	Report (582 KB, pdf)
Consultant	Malcolm Watson Consulting
Published year	2018
Pages	48
Document Type	Evaluation
Theme/Sector	Enterprise, Support to existing/growth businesses