The FT reports a bad year for the BBB investments in UK venture capital

The British Business Bank has done well to limit losses for the past year to £135m. The cost to Government of the Bounce Back Loans that BBS administered (but did not take on its balance sheet is close to £7bn in delinquent loans).

The state-owned BBB, founded in 2014 to increase the supply of finance available to smaller British businesses, this morning reported a £146mn loss on its investment portfolio — 5 per cent of the portfolio’s total value — against a £619mn gain the previous year.

The bank invests in venture capital funds that provide financing for companies in sectors including technology and life sciences, as well as overseeing financing for regional investment and start-up funds. A fall in tech company valuations in recent months due to fears over rising interest rates and economic growth have taken a toll on its investments. Chief executive Louis Taylor said the “unwinding of previous unrealised gains” may well continue over the next 12-18 months too.

Most of the bank’s investment losses have not been realised because it holds investments over the long term, and it expects to ride out fluctuations in the short-term marked-to-market valuation of its assets, according to Taylor. In the meantime, he said companies were proving resilient in spite of a tougher economic and funding environment, with relatively low default rates from borrowers.

The BBB is writing down many of its investments including some it made under the COVID prompted Future Fund where it invested alongside private equity. 100,000 businesses got finance through this scheme including Bolton Wanderers FC and sex-party planner Killing Kittens.

The BBB’s future is important to Government and their Mansion House Reforms. Nicholas Lyons, the outgoing City Mayor is planning to structure the Compact between leading financial houses using BBB as administrator.

The FT report Taylor saying

“I think the important thing is that at 56 per cent of our balance sheet, which is in these equity investments where the biggest shift [in valuation] has happened, that’s . . . still sitting at one-and-a-half times the price that we paid for it,”

“So it’s not like the taxpayer is doing badly on this portfolio.”

The bank reported an adjusted return of 6.5 per cent, ahead of its 1.3 per cent target but much lower than last year’s figure of 18.2 per cent. While equity valuations have fallen, the BBB has benefited from higher interest rates on its loans.

The question many will be asking about timing.

“is this the start of the end of the write-offs“.