Today it was announced that UKFI, the company set up by the British Government that owns all sorts of bailed out assets stemming from the financial crisis, had sold 6% of Lloyds Bank for £3.2bn. From first announcement to actual sale took less than half a day. And, according to the press, there was interest in £9bn of shares. For those of us working in social investment, where even a successful deal can take a month to raise a few million pounds, these amounts of money and the time-scales involved seem truly staggering.
The most important lesson for social investment has to be that the money is there for the right investment. And it is there in enormous size. It’s just not straightforward to access it.
So what is it about the Lloyds sale that was so different to social investment capital raising? FLAIR.
Investments have to be in the right format for investors to want to buy them: they must have a format that works for the investor from a legal, tax, operational and regulatory perspective. Investors want to be able to buy, hold, and sell investments cheaply, easily, and efficiently.
For many investors, the ability to sell the investment again is an absolute necessity: they may be constrained by regulation or policy from holding investments that they cannot sell, and there can be accounting implications too. Even for individuals this is an issue – people like to know that in an emergency they have some way of realising cash from an investment. In the social investment space, providers like Ethex are helping to bring liquidity to social investments.
When it came time to make the sale, the banks involved would already have known who to call, and have had the right working (and contractual) relationship set up.
In addition, even before making the calls, they would have had a good idea which institutions would most likely be interested in buying – in the weeks and months leading up to the sale, they would have been having conversations assessing interest in a sale should it happen.
Lloyds is a public listed company – which means that there is plenty of publicly accessible information about the organisation available – and moreover that information will continue to be available. Investors abhor a lack of information – they feel they cannot make rational decisions without plenty of information and transparency, and the knowledge that the information flow will continue in to the future. They particularly abhor information asymmetry (whether real or perceived) – the fear that someone else knows more than they do and can therefore make better decisions than they can.
Beyond information being available, investors have to feel they understand it, and there is still a compelling reason to buy. In this case, there is nothing novel about the structure of the investment or the company. The value of the company was being continuously assessed externally, and they were being offered shares at a discount to where they had been trading that day. For novel investments, or investments where there is a claim being made of a social benefit, the investor will desire crystal clear arguments as to why the investment makes sense.