Public servants will need to improve their relationships with the financial community if the country is to make the most of the chancellor’s planned investment in infrastructure
When I was 17, I only had two friends and a dog called Sarah. One of these friends is now serving life for murder and the dog is long dead, although these two events are not directly related. In contrast, my teenage daughter has 700 friends on Facebook, no pets and the worst criminal she knows shoplifted some lipstick from Boots. Once.
I was reflecting on these differences when I was watching the Chancellor announce that of the £30bn to be spent on Britain’s infrastructure only £5bn would come from the public purse and the rest from pension funds. This means that the public sector is going to have to quickly make a lot of new friends in the banking community and, like my teenage self, I worry that they will find this a struggle.
To date, the relationship between bankers and the UK public sector has not been a happy one. In my experience, seeing civil servants and bankers in the same room together is like witnessing an anthropological experience somewhere in South America. Two socially isolated and fiercely independent tribes warily meeting each other for the first time and both planning to do something dreadful to the other.
With private equity this chasm is even wider. This is an industry that has over 150 different funds investing several billion pounds per annum into the UK, but hands up those of you who have ever met a living breathing private equity investor.
This failure to make connections with potential funders can only be to the detriment of the public sector. The global investment community is blithely indifferent to whether or not our British civil servants want to be friends and will happily play with your more outgoing European or US cousins. This means of course that the UK will struggle on with decaying infrastructure and diminishing services whilst the US tries to build itself out of recession funded in part by municipal bonds and public/private partnerships.
So how to change this ? The first step is to recognise that you could have been more accommodating and hold out the olive branch of friendship. Be nice, forget the past and try to resist making bail-out or bonus jokes.
Your second and more tricky step is to come to terms with the difference in values. You may work in a town hall with an index-linked pension; bankers work in Canary Wharf and have a depreciating Porsche, so, of course, you will have different values. Let’s be polite and say theirs are more short-term and focused whereas yours are more long-term and less measurable. This is not an issue. Houston we do not have a problem. There’s unlikely to be any clause in your set of values that says somebody else cannot make money out of your project.
You will also have to learn a slightly different version of English, as you and your new banker friend will probably not speak the same one. You may have a love of words, think Shakespeare is funnier than Michael McIntyre and regularly reread Ulysses. Your average banker does none of these things. He is obsessed with the textbook meaning of words and lives in a world that is black and white not ‘noir’ and ‘linen’.
For example, the words ‘may’, ‘undertake’ or ‘will’ have such different meanings from a financial perspective that they might as well be a different language. Try telling you’re wife that you ‘may’ or ‘undertake’ to be faithful at that forthcoming lads night out and you will get some idea of the importance other people place on precise definition
Having squared off the difference in values, you will also have to find a similar concord on your different objectives. As a slightly weird and lonely teenager, my main objective in life was to meet with female Goths ie nice middle-class girls who had eschewed having fun in favour of a lifestyle centred on black eyeliner, Joy Division albums and ankle-length skirts. Predictably, these were a pretty rare breed in 1970s South London, which is why I had single-figure friendships with nascent psychopaths.
Your objective is to make your project a reality. Your new best banker has an entirely different set of objectives. His will be quite clear; he wants to make money out of money – 6-7% per annum for bank debt, 15-20% for private equity. You may feel this is distasteful and of no social worth, but get real. Banks have been making money out of money for 2,000 years. It’s what they do. It’s how capitalism works and it’s why we can afford to host the Olympics, whereas North Korea cannot feed its own population.
Underlying this is a more profound objective; don’t lose the money. Looking back over the last few years of bailouts this may seem hard to believe, but the first rule of the bankers club is ‘don’t lose the money’. The second rule is also ‘don’t lose the money’.
Money is ultimately an ephemeral thing, once it’s gone, it’s gone. Returns are all very well but if the banker only makes 10% on each deal, he cannot afford for more than one in 10 deals to go horribly wrong before the bank has lost money overall. Do this a couple of years in a row and he will soon be handing back the keys to the Porsche. Given the rewards on offer, there is no shortage of people who reckon they could give this banking lark a try, so his boss is pretty unforgiving of failure.
Your challenge is to reassure him that none of these bad things will happen. His precious Porsche is safe in your hands and he will get his money back with hopefully a bit more on top. Imagine your project is a big jug that he is pouring his money into. Your role is to build the jug in such a way that nothing leaks out and the water stays in nice and tight for at least five years.
This sounds easy but as our Greek and Spanish cousins have shown us, robust potters have been in pretty short supply recently. Think about your project, try to work out where the holes are and patch them up. This is about risk. What could go wrong and how are you going to stop it happening.
Finally you have to get along. This sounds glib but ultimately you and banker are going to have to put together a complicated deal, sell it to your respective bosses then live with each other, as business partners for at least five to ten years. This will only work if you want to be friends. I am not saying you have to have them over for dinner, but you must at least be able to share a beer or two.
This sounds obvious, but over the last few years I have seen a couple of perfectly bankable deals fail to attract investment because the people behind them were just not very likable or in one case, actively dislikable. This is a hard skill to teach but a good starting point is to be honest, straightforward and do what you say you will when you say you will.
It will also be helpful if you put your prejudices to one side and accept that your banker friend is only trying to do his job and pay his mortgage just like the rest of us. Ok his mortgage may be on a lot bigger house in Sloane Square rather than Salford but that’s beside the point.
So, in conclusion, George Osborne is relying on lots of civil servants overcoming their natural inhibitions and making friends with lots of bankers. This will not be easy. The banks have been the villains in the piece for a long time now and the English have always liked to think of politics as goodies versus baddies. We have all got to grow out of these silo paradigms of ‘them and us’, public versus private and see the world more like my teenage daughter.
You will not get anything done with only two friends and a dog, especially if one of them still has 15 years of his sentence left to serve. The bankers are the people who will write the cheques that make your dream a reality, so make friends, share your toys and play nicely.
Michael Ware is corporate finance partner at BDO
