CITY GRUMP
An old City colleague led me to a letter in the Financial Times last week. It is an eye-opening wake-up call to our politicians, civil servants and anyone else who professes to be interested in spurring on what the letter writer calls the “UK tech ecosystem”.
It concerns the takeover bid for a £1.2bn UK listed investment company you probably have never heard of called Herald Investment Trust. I have though as I helped get it off the ground, 31 years ago, in 1994. Since then, it has been managed brilliantly by Katie Potts who has grown it from the initial £65m we raised in those days. It (and by the way six other investment Trusts) are under attack from a modern day Barbarian at the Gates, US hedge fund Saba Capital Management, who wants to liquidate Herald’s lifelong dedication to early stage tech investment and just add what remains of the ensuing lucre to its funds under management.
Why should this matter to us all? The FT letter’s author, Sir Hossein Yassaie, who was the CEO for 18 years of the highly successful UK company, Imagination Technologies, explains:
“I am an active tech investor and have been both chair and a non-executive director in a number of UK tech start-ups with a major focus on scale up and achieving global impact…..Herald is the most important institutional investor in the UK small cap tech sector, having supported 584 fundraisings for UK companies including 66 UK initial public offerings since 2007. Herald, for example, was an early-stage backer of four UK tech companies involved in the iPhone’s development, including Imagination Technologies. Although Herald’s investment remit is worldwide, Herald plays a major role in the UK tech ecosystem that needs growth-stage investors to thrive and one that must be protected”
What does Yassaie mean by “must be protected”? He has been in the thick of it. Post his departure, Imagination was bought by a Chinese investment company and in 2020 the Chinese were accused of throwing out the key British directors and forcibly asset stripping the technology back to mainland China. The controversy continues to this day. One positive outcome was in 2021 the UK National Security and Investment Act became law. It requires anyone who wishes to take over a UK company operating in one or more of 17 sensitive areas of the economy, must notify the UK government who can, if it so wishes, determine the suitability or not of the acquirer.
Yassaie concludes in his letter:
This short- termist attack by a US hedge fund should be a matter of concern for anyone who cares about the UK tech sector ecosystem and its future….Given Herald is an investor in companies operating in many of the 17 sensitive areas of the economy, it should itself- as a key ecosystem player- be subject to NSI considerations”
I expect it hasn’t escaped your attention that, as I write this, our Chancellor of the Exchequer, the Governor of the Bank of England and the CEO of the Financial Conduct Authority are in Beijing cosying up to the Chinese.
Yassaie touches on one other very disturbing and highly significant aspect of this takeover bid when he writes, “Losing the liquidity Herald brings would jeopardise the UK’s independent ability, through the stockmarket, to take tech companies to scale and exit”.
For years now, the London Stock Exchange has sat idly by as its smaller companies market, Aim, has witnessed a near halving of the number of listed companies to circa 600 today. Herald is a key supporter of Aim and its demise would be another major blow to this market. Some months ago Ed Balls on his Podcast with George Osborne, Political Currency, pointed out that the London Stock Exchange Group has largely become a data sales business and was no longer fit to run the UK’s equity markets. I agree. The Herald situation is the latest canary in that coalmine.
In summary, a philistine takeover-bid for an investment company you probably have never heard of points up the present awful vulnerability the UK tech ecosystem is faced with. Action this day is required, as someone once said.
The City Grump has spent some 40 years in the City of London. He started as a stockbroker’s analyst but after some years he decided he was too grumpy to continue with the sell side of things so he moved to the buy side and became a fund manager for the next 20 years, selling his own business in the 1990s. Post the millennium, he found himself in turn chairing a stockbroker, a financial PR company, and an Exchange. He still keeps his hand in, chairing a brace of VCTs and investing personally in start-ups. The City Grump’s publications are available here.