Next week, after more than a decade of anticipation, Grand Theft Auto VI will finally be released. British productivity will nosedive as millions descend on the fictional streets of Vice City to do things that will never make it onto their LinkedIn profiles.
Few of them will be thinking about pension funds or English devolution. And that’s fair enough. But the story behind GTA raises a serious question about the British economy: how do we give our most successful homegrown businesses the means to become global giants while keeping more of the value they create here?
The original Grand Theft Auto was developed in Dundee by Scottish studio DMA Design and released in 1997. Two years later, American publisher Take-Two Interactive bought the studio for around $11 million, having acquired the GTA rights the previous year. Renamed Rockstar North, the company still leads development from Edinburgh. The people putting in the hard hours making the games remain in Scotland, but the ultimate ownership of the franchise, along with a significant chunk of the profits, is in New York.
There is something rather cliché about that journey. And it’s a cliché that leaves a rather sour taste in the mouth when GTA VI is expected to become the most lucrative entertainment launch in history.
The great British sell-off
In an aptly timed investigation published this week, the Financial Times found that more than 300 UK-listed companies, worth over £500 billion between them, have been acquired by foreign buyers over the past decade. Royal Mail, Deliveroo and Darktrace are just a few of the recognisable names that have passed into overseas ownership.
Foreign takeovers can make good commercial sense. They bring investment, expertise and access to new markets. Indeed, GTA’s greatest success came after the American acquisition. The question is whether this is truly a choice, whether Britain’s most promising businesses have equally credible opportunities to grow independently.
Britain has proven it can produce ambitious founders and successful companies. The difficulty often comes later, when a business has moved well beyond the start-up phase and needs £50 million or £100 million to expand internationally, develop new technology or acquire competitors. At that point, overseas investors can offer access to capital on a scale that is harder to find at home.
Britain is hardly short of money when it comes to institutional capital. But according to the FT, only 3% of the approximately £3.6 trillion in UK pension funds goes to domestic listed equities.
The Government is beginning to respond. October’s Budget increased the British Business Bank’s capacity by £5 billion, including £1.4 billion for equity funds, while major pension providers are exploring a £1 billion-plus UK Scale-up Fund. The challenge now is to connect that capital with companies ready to grow, so the next DMA Design has more options than an overseas buyout.
And this is where devolution could play a much bigger role.
Backing the next British giant
Other countries have shown how institutional investment can help homegrown businesses grow into global competitors. In Quebec, pension investment institution La Caisse manages more than C500 billion, around C100 billion in the province. Its mandate combines delivering returns for savers with supporting Quebec’s economic development.
Ireland offers another model. Its Strategic Investment Fund has committed €9.7 billion to Irish businesses and projects, attracting a further €13.7 billion in private and institutional co-investment. It explicitly backs established Irish companies seeking to expand internationally, including supporting industrial tooling business ATA Group in its acquisition of a German competitor.
Both demonstrate how long-term investment capital can help successful domestic businesses grow internationally, rather than leaving an overseas sale as their only realistic route to expansion.
The opportunity for English mayors
The UK has many of the ingredients for a similar approach. The Local Government Pension Scheme in England and Wales manages around £438 billion, and recent reforms are bringing pension pools and Strategic Authorities into closer cooperation on local investment opportunities.
Mayors could play an important role in connecting that capital with businesses capable of driving regional growth. They understand their local economies and can bring together businesses, investors and public institutions to identify opportunities, while leaving investment decisions to those responsible for delivering returns to savers.
Imagine pension pools serving Greater Manchester, Liverpool City Region and West Yorkshire working with the British Business Bank to develop a Northern growth-equity fund. Such a vehicle could back established technology companies, manufacturers or gaming studios with Rockstar-sized ambitions, helping them expand internationally rather than seek an overseas buyer.
The Government is already developing the next generation of British Business Bank regional investment funds with mayors. It should use that opportunity to put growth-stage equity firmly on the devolution agenda. After years of focusing on attracting inward investment, mayors should be just as interested in helping successful businesses already in their regions stay and grow.
Foreign takeovers are not inherently a bad thing. GTA’s success is a testament to that. But British entrepreneurs should have a genuine choice when deciding how to grow their businesses.
The ambition shouldn’t simply be to create the next Rockstar. It should be to give the next Rockstar a realistic opportunity to become the global buyer, rather than the business being bought.