Chaired by former Goldman Sachs Asset Management chairman Jim O’Neill, Northern Gritstone launched in 2021 with a mandate to address England’s regional wealth and employment inequalities by making seed investments in spin-out companies from the universities of Manchester, Leeds and Sheffield – all based in the north of England. It is structured as an investment company deploying evergreen capital as opposed to a closed-end fund: investors are shareholders in the company and must sell their shares to liquidate their investment. It reached a £215 million first close last year.
The firm initially sought up to £500 million, though CEO Duncan Johnson explained that the amount raised was in line with expectations. He told New Private Markets: “£500 million was always a hard-cap, not a target. The management cap was within £10 million of what we raised. The market has completely changed compared to when we launched. It was a risk-on market, now it is very much risk-off.
“It was important to set a hard-cap of £500 million because it immediately stopped conversations around raising £50 million being a good result for the strategy, which just wouldn’t have been enough for what we are trying to do.”
So far, Northern Gritstone has invested in 15 businesses and deployed 12 percent of its capital, Johnson said. The firm hopes to have gained another four or five portfolio companies by the end of the year, resulting in a total deployment of around 20 percent. There are also plans for co-investments totalling £250 million.
The strategy attracted significant attention from UK Local Government Pensions Schemes, with South Yorkshire, West Yorkshire, Greater Manchester, Merseyside and East Riding Pension fund all part of the investor base. Other investors include M&G’s Catalyst fund, Columbia Threadneedle, Lansdowne Partners; Bruntwood and other institutional investors and family offices.
“Getting Greater Manchester Pension Fund on board opened the door to other pension schemes. We now have the whole Northern belt, from Liverpool to the opposite coast (as shareholders)” Johnson explained.
Going forward, Johnson sees opportunities for the firm to raise money using a conventional LP/GP structure, though this is not an immediate priority. “There are lots of opportunities. For example, I can see a need for scale up capital, as we aren’t really able to do that from our balance sheet to the extent we would like,” he said. “But in the first instance, we need to do what we have said on the tin. We haven’t yet earned the right to chase new opportunities.”
At the moment, the firm is committed to growing its Innovation Services product, which provides resource for growing companies and launched earlier this year. As part of this, Northern Gritstone hopes to to partner with providers from with operations in the “golden triangle” of Oxford, Cambridge and London to bring the their services to the North.