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The risk of private equity to the economy

Plus, the UK's top 100 fastest-growing companies, the six high school friends now worth £1bn and Aviva chief says the next government can unlock £100bn of investment

Duke of Wellington Statue and Bank of England

Only six days left before the country goes to the polls but attention turned stateside in the early hours of this morning as Joe Biden and Donald Trump squared up in their first head-to-head television debate. A snap poll from left-leaning host broadcaster CNN revealed a hefty win for Trump with 67 per cent of viewers saying the former president came out on top.

There were frequent pauses and stuttering from Biden during the debate, but he told reporters after the event that “it’s hard to debate a liar”. Concerns have been growing about the potential of 81-year-old Biden serving another four-year term and his performance has reportedly heightened the worries of some Democrats. Rumours have been swirling about California governor Gavin Newsom being parachuted in as a replacement nominee for the US’s top job.

Closer to home, the Bank of England (BoE) has released its Financial Stability Report, which contains an analysis of the state of the country’s private equity sector. It has grown rapidly over the past 15 years, in part due to low interest rates. However, as we enter a second year of interest rates higher than 4 per cent, the BoE warns that although the sector has been resilient so far, “the widespread use of leverage within private equity firms and their portfolio companies makes them particularly exposed to tighter financing conditions.”

BoE analysis estimates that PE-backed corporates account for around 5 per cent of UK private sector revenues and around 10 per cent of private sector employment (more than 2 million employees). Rising risk around loan defaults threatens to set off a domino effect that would not just affect PE-backed companies but the country’s economy as a whole.

The report says:

Vulnerabilities from high leverage, opacity around valuations and strong interconnections with riskier credit markets mean the sector has the potential to generate losses for banks and institutional investors and cause market spillovers to highly correlated and interconnected markets such as leveraged loans and private credit – all of which could reduce investor confidence, further tightening financing conditions for businesses.

In better news, the economy rebounded from the technical recession in 2023 faster than first estimated, according to revised figures. The Office for National Statistics (ONS) reveals that the economy grew by 0.7 per cent in the first quarter of the year. The original 0.6 per cent figure beat analyst expectations.

The revised figure represents a 0.3 per cent improvement on the same period last year. A revision was made to output figures too, with the production sector growing by 0.6 per cent and the construction sector falling by 0.6 per cent.

Business Question

Who am I?

  • Today is my birthday
  • I was born in Pretoria, South Africa
  • I sold my first piece of software, a game called Blastar, for around $500 when I was 12 years old
  • I founded my first company with my brother in 1996
  • I founded X.com in 1999 and SolarCity in 2006
  • I love a boring flamethrower

The answer can be found at the bottom of the page.

Business in Brief

Everything you need to know

1. The next government can unlock £100bn of investment by providing a more stable policy environment and an approach to regulation that encourages a “degree of risk-taking”, according to the chief executive of Aviva, Dame Amanda Blanc. She says businesses are ready to spend if the next administration provides “the right environment with the right incentives and, more than anything, the stability in public policy to allow us to invest the capital we manage on behalf of millions of others”. You can read more here.

2. The Lloyds Bank Business Barometer has found that overall business confidence fell by nine points to 41 per cent in June. This comes just a month after private sector confidence hit its highest point since 2016. You can read more here.

3. The Times has released its list of the 100 fast-growing companies in Britain. Fintech Allica Bank topped the list with three-year annual growth of 537 per cent. The average annual sales growth rate of the companies on the list is 118 per cent and they plan to plan to create more than 3,800 new jobs in the next 12 months. You can read more here.

4. The Economist is backing Sir Keir Starmer to be the country’s next leader. The publication says: “No party fully subscribes to the ideas that The Economist holds dear. If we had a vote on 4 July, we would pick Labour, because it has the greatest chance of tackling the biggest problem that Britain faces: a chronic and debilitating lack of economic growth.” You can read more here.

5. SME lender Simply Asset Finance has had a shot of confidence after agreeing to a new loan facility from Wall Street giant Bank of America. The fintech says the facility, worth up to £120m, will enable it to raise its lending to UK businesses by 30 per cent and increase loan origination by around £100m in the first year. You can read more here.

Business Quotes

Inspiration from leaders

“None of us is as smart as all of us.”
– Ken Blanchard

Business Thinker

Ideas on the future of business and leadership

1. 🏃 How Nike missed the boom in running culture 🏃

2. 🏢 Businesses are using ‘sociologists, psychologists, and anthropologists’ to work out how to get staff back to the office 🏢

3. 🎓 The six high school friends now worth £1bn 🎓

And finally…

The Bear is back. The third season of the brilliant drama set inside a restaurant in Chicago has launched on Disney+. The first two seasons are among the best TV ever made, so they’re worth catching if you haven’t yet.

This show, at its heart, is about what it is like to launch and build a business, including the strain it puts on personal relationships and the skill, craft and determination that goes into it. The Guardian named it the best TV show in the world in 2022 and 2023, ahead of Succession, which gives you an insight into how highly-regarded this show is.

You can see that list here and find the new season here.

The answer to today’s Business Question is Elon Musk.

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