Patient Capital

 

Patient Capital ImageWhat do the Clifton Suspension Bridge, Cardiffs Docks and the Suez Canal all have in common? 

Other than the massive utility and the long term value they have brought to local, national, and global economies, the one feature they all share is that in the short term, they were enormous money pits.

Isambard Kingdom Brunel, the builder of the Clifton suspension bridge across Clifton Gorge near Bristol died before the bridge was completed, but it was decades before it paid for itself. 

The Marquis of Bute poured millions into creating the biggest coal port in the world, and like Brunel, was long dead before it made its money back.

In many instances, the spirit of these Victorian gentlemen capitalists also appears to have expired, or so says entrepreneur Luke Johnson, who recently argued at a Quoted Companies Alliance gathering for more ‘patient’ capital.

Johnson, whose successes include Pizza Express and Patisserie Valerie, has said that hedge funds that invest in businesses and then divest within a matter of months should not be classed as investments at all.

Patient investors, Johnson believes, invest in businesses for the long term; experiencing losses or low returns in the interim while the business grows. 

A long term approach where investors are involved for years instead of hoping for a short term share price hike before exiting with a profit is essential for the development of business and the growth of the economy in general.

Johnson argued that businesses stand a better chance of survival when accessing capital if they become PLC’s and sell shares to the general public, than if they accept the private equity deals they are often presented with.

From the point of view of the economy at large, there is much to be said for Johnsons views, and investors dont have to be quite as patient as the Victorian gentlemen capitalists in order to see a return on their investments.

In his final point, Johnson encouraged the public to buy shares in up and coming companies; most of the main share offers that small investors participate in are giant flotation’s like the Royal Mail or the AA.

From the perspective of the small investor, buying shares in a small but growing business might seem more risky and difficult, but with some independent help it could prove to be a valuable part of an investment portfolio.

Finding a fund that invests in a range of new and growing businesses may help to spread the risk, as well as putting some of your investment capital into more established fields.

As with all investing, there is inherent risk, no business, great or small is guaranteed to be successful; but a business with the capacity for growth in the long term is certainly worth owning even a small share of.

Whilst investment is all about self interest and the balance between risk and reward, there is something to be said for the greater social goodthat long termism engenders. 

Some funds are simply interested in riding the short term wave of share prices, and this prevents the kind of growth that boosts employment, contributes to the tax base and makes society function.

There is, therefore, another kind of investment that all share buyers can engage in; a long term investment in the society around them, and its an investment that will almost certainly pay dividends in the long run.