Longer-life funds and long-term investment expected to grow

PRIVATE EQUITY could give a boost to sustainable finance with a move away from the standard 10-year lifespan of a private equity fund, according to Guernsey’s Guy Hands.

Guy Hands. (28795141)
Guy Hands. (28795141)

He said longer-life funds and long-term investment would grow in popularity when addressing a webinar hosted by industry promotional agency Guernsey Finance.

‘I think the investment traditional strategies that mainly focus on going for short-term profits rather than focusing on long-term earnings, particularly when you get interest rates down at these sort of levels, are just wrong,’ said Mr Hands.

‘If you gave me a choice between investing in a private equity fund which said we can get you 15% returns and our average life is five years, or something where I can get 8% returns with an average life of 25 years, I prefer the 8% over 25 years, because I think that ability to reinvest at 15% is far less, and the costs of doing it are far more. But I think that’s a difficult thing to get out there.’

More patient capital in private equity was seen as an opportunity to back more sustainable finance projects and the likes of life sciences.

‘If you actually look at the returns, you make a lot more money if you can find a good business which has been proved over so many years, which will adapt for where society is going over the long term.’

Mr Hands, chairman of Terra Firma Capital Partners and a Guernsey resident for more than a decade, said that one of his most successful investments had been in forestry. ‘The returns are minute per year, but over the very long term, forests have done unbelievably well.’

He has already spoken out this year, during the Covid-19 lockdown, on the need to build a better world.

He said in the webinar, staged as part of the recent Climate Week NYC 2020, that he had ‘always been a passionate believer that man is producing climate change’ with the diverse range of Terra Firma’s business investments affected by weather-related issues.

‘We owe it to our children and their children to start making some really passionate moves, and I get upset by the fact that we are spending trillions on Covid, and if we spent a similar sort of money on trying to find some real positive solutions to how the world can develop, but at the same time not destroy itself, we would make enormous progress.

‘Today’s agenda is much more about a balanced world. It’s about sustainability. It’s about being willing to give up economic growth for a better environment. And if the big companies miss that trend, my personal view is they won’t succeed for very long.’

Dr Andy Sloan, deputy chief executive, strategy, at Guernsey Finance, and the chairman of the industry steering group Guernsey Green Finance, said the jurisdiction was already looking at rethinking the private equity model. ‘Guy’s suggestion is totally aligned with our thinking in Guernsey and we will be looking to raise this prospect with the managers of Guernsey Green Funds,’ he said.

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