The North East money drain

And other stuff you should be interested in...

The UK’s first private sector-led regional investment fund has been a decade in the making, but is Develop North PLC finally in a position to be the laser-focused financial disruptor the North East always dreamed of?

Simon Rushworth talked to a passionate and forthright Ian McElroy who believes that North East investments and pension contributions should be used to benefit the region.

“Think of it like a giant holdall of North East cash. We drop it off at Newcastle’s Central Station and wave it off to London, never to be seen again,” he says. “What makes it even crazier is we then have these trade missions all over the world to ask for the money back! Don’t get me started on inward investment.”

It’s an interview you won’t want to miss and it’s at the end of today’s edition.

First, some Eyes & Ears Extras, including shameful child poverty stats (that, sadly, are all too familiar), how fifty female founders found their way to Downing Street, and the launch of a Northumberland food initiative that has brought back memories of my ‘Buy local, use local, eat local’ campaign and an extraordinary food and drink festival held in partnership with the National Trust.

Stats of shame

One in three children across the North East are growing up in poverty according to figures released by the Department for Work and Pensions. The area with the highest level of deprivation is the Middlesbrough and Thornaby constituency where more than 4 in 10 children (44%) are living below the poverty line. Newcastle Central and West comes next with 40%.

Suzanne Jobson, a vice chair of the North East Child Poverty Commission and operations & development director at the regional charity, Children North East, said: “Scrapping the two-child limit and expanding free school meals – the two flagship measures in the new national child poverty strategy – are hugely important and welcome, but the Government cannot stop there if we are to expand opportunities for all babies, children and young people growing up across the North East.”

She who dares…

It’s not every day you find yourself stepping through the doors of 11 Downing Street. But this week, 50 female founders from across the North East did exactly that.

The reception was more about informal networking rather than panels or pitches, encouraging open conversations and meaningful connections between founders, investors and decision-makers. North East Mayor Kim McGuinness was there alongside the likes of TV Dragon Sara Davies and journalist and presenter Steph McGovern.

The driving force behind the event was Sophie Milliken, founder of Moja and co-founder of City Ladies Networking, and it was a result of her direct approach to Rachel Reeves at a roundtable discussion between female entrepreneurs and the chancellor at the Government’s Economic Campus in Darlington in January.

High Life North founder Laura Kingston was at Downing Street, as Rachael Ellis reports for the magazine.

Welcome, but…

Nigel Farage chose Sunderland - Houghton-le-Spring to be more exact - to launch Reform’s local election campaign on Thursday. The event saw the party announce the defection of Hartlepool Labour councillor Aaron Roy, an Indian citizen who, as The Teesside Lead points out, would lose the right to vote in an election if his new party were to gain power.

Very, very tasty

Taste of Northumberland was launched this week, a partnership between Visit Northumberland, Food and Drink North East and Northumberland County Council to champion the food and drink grown, made and served in the county.

A great initiative - and one that brought back so many memories of The Journal’s Taste North East campaign I launched in January 2008. ‘Buy local, use local, eat local’ was the message to retailers, consumers, hoteliers and restaurateurs across the North East to make positive purchashing decisions and keep the local pounds circulating in the local economy.

The reaction was astonishing. The National Trust approached us about holding something of a farmers’ market at Gibside - the first Taste food and drink festival. It was organised within three weeks and, thanks largely to my Features Editor Jane Hall, was a huge success.

The reaction was incredible and people were so willing to help. We planned for 20 stallholders but had to create a waiting list when we got to 60. Hairy biker Simon King was one of the chefs who gave their time for free.

And the number of people who turned up! MD Steve Brown and commercial director David Simms became unofficial parking marshals at one point as more and more cars kept arriving.

There’s an article here which was written just before the event. It includes some background on the launch of Taste and includes a list of all the stallholders who took part. It would be great to think we could get get something similar going again.

A quick word

Sunderland councillors have passed a motion opposing the closure of the National Glass Centre. It calls on Sunderland University to work with the local authority and its partners to lobby for short-term funding for initial capital works while an independent review into the future viability of the centre takes place. Two more Newcastle neighbourhoods are to receive £20m funding under the government’s Pride in Place programme to support projects chosen by local people to breathe new life into their communities. Fawdon South and Throckley & Newburn join Elswick South and Walker North among the total of 284 neighbourhoods across the UK receiving funding over 10 years under the £5 billion scheme. Groundwork NE & Cumbria has secured more than £1.4m of funding to restore the mudflat and saltmarsh on the River Wear in Sunderland. The osprey known as KX7 has kept up her early bird record by being the first to land at Kielder after her migration flight from Senegal in west Africa. In fact, she landed in the same nest on the exact same date as she did last year, as Tony Henderson reports. Sam Fender has donated £50,000 to Youth Music, with the total rising to £100,000 through match funding for projects supporting young people in the North East. The donation, from ticket sales on his People Watching tour, will contribute to Youth Music’s Rescue the Roots campaign, a £2m drive to protect grassroots youth music across the UK. It was expected to be open more than three years ago at a “fully funded” cost of £35m, but the upgrades to Middlesbrough railway station are still not complete and the costs have quadrupled. Sunderland-based workforce intelligence company Moralbox, which secured more than £500,000 of growth funding last year, has rebranded as Workprove.

A first look

The first images of British Esports’ 15,000 sq ft arena in Sunderland - remamed British Arena - have been released. The multi-use venue, with a seating capacity of 200 and 400 standing, will host live music events, comedy nights, esports and other sporting events, conferences and be available for private bookings.

The venue will sit alongside the existing National Esports Performance Campus facilities and The Place accommodation located in Sunniside.

‘People talk about the brain drain – this is the North East money drain’

Ian McElroy. Image: Christopher Owens

By Simon Rushworth

According to a resoundingly passionate and typically forthright Ian McElroy, Develop North represents ‘a once in a lifetime opportunity for the region to create something unique that can last forever’. He’s not holding back and the narrative’s compelling. It could well be true.

What comes next — speaking as someone who, over the years, has naively squirrelled away thousands of pounds into pensions without ever questioning where the money really goes — is a genuine wake-up call. It catapults Develop North into perspective and underlines why you should never utter the phrase ‘inward investment’ within earshot of Ian.

“More than one hundred billion pounds belongs to people who live in the North East,” he explains. It’s the kind of sum that naturally elicits a sharp intake of breath — a transformative amount that could truly reshape our region. “You might have some savings, your next-door neighbour will invest in some stocks and shares and the lady behind the bar at your local will have a little pension.”

Does a lifetime collection of limited edition 50p pieces stored in a chipped Doulton sugar bowl count?

“Look, it all adds up, whether it’s £100 or £100,000,” Ian points out. “Put all of our region’s money into a big pot and that’s more than £100bn that belongs to the North East. Pretty much none of that is invested in our region.”

Just let that sink in, for a moment. ‘Pretty much none of that’. The first time Ian explained this damning state of affairs — at a black tie dinner celebrating the rising stars of Newcastle sport — I was genuinely taken aback. This is the third, or even the fourth, occasion we’ve discussed Develop North and that shocking revelation is no less impactful.

“What happens is that we put our regional worth into savings schemes month after month — and I’m including pensions here — without thinking about where it’s going or what it might do to benefit our region,” adds Ian. “Think of it like a giant holdall of North East cash. We drop it off at Newcastle’s Central Station and wave it off to London, never to be seen again.

“What makes it even crazier is we then have these trade missions all over the world to ask for the money back! Don’t get me started on inward investment. People talk about the North East brain drain — this is the North East money drain.

“Develop North aims to plug that drain.”

It turns out Rachel Reeves is of a similar opinion when it comes to the perceived ‘craziness’ of the current situation. At last summer’s Mansion House speech, the Chancellor addressed pension reform and pledged to ringfence 5% of local government pension scheme assets for investment in regional growth.

How would that look in the North East? The latest published reports reveal that the Tyne and Wear Pension Fund (TWPF) had net assets of £13.5bn. Under Reeves’ reforms that would translate to a guaranteed £675m investment in regional growth.

“I’ve long advocated for a hypothetical 1% contribution and even that would equate to £135m,” adds Ian. “It’s no small sum. Five per cent of the TWPF could do so much good for the people who already pay into its fund.

“We simply want to retain what’s ours. Keep North East money in North East hands. We’ve launched an investment fund that’s accessible to everyone. If we’re going to invest in the region, we want that to be an opportunity for everyone to invest in the region. If people have ownership of assets in the place that they live and work, I can guarantee you that connection between people and place will be way higher than anywhere else in the country. We’re so passionate about our region and as a wider community we want it to thrive.

“Develop North offers an opportunity to the people of the North East to invest in the North East. See where your money goes, experience its effect and celebrate its impact. Oh, and enjoy a return on your investment too.

“People in our region now have a generational opportunity to invest in the place they call home — the place where their kids are growing up right now — and get the same level of return that they’re already getting! What I’d say to people across the North East is ‘here is a chance to leave your legacy now. You can make your mark on history’.”

Ian, of course, has skin in the game. Make that mind and body too. Develop North’s non-executive director was part of the Tier One Capital team that first hatched the grand plan for a private sector-led regional investment fund as far back as 2015. Back then nobody really knew what that would look like, how it would work and whether there would, in fact, even be an appetite for pumping North East money into North East projects.

“Long before Develop North existed, Tier One Capital was looking after people’s money and offering financial advice,” explains Ian. “Within our client base we had individuals who were struggling to borrow money from the bank for good development projects. The whole world had changed after the property crash in the late 2000s.

“On the one hand there were people with money who were looking for consistent returns above what you get in the bank. On the other hand, you had people who were looking for money. Our network included people on both sides of that coin so we brought them together and built quite a significant loan book.”

But a loan book’s a long way from a fully-fledged investment company. Ian and his colleagues had provided proof of concept — to a degree — but in order to realise the North East’s investment potential, and shape what would become Develop North, a serious pivot was required. Enter one of the region’s most celebrated and buccaneering business leaders.

“I remember going to talk to Sir Graham Wylie,” adds Ian. “We’d come out of Covid and we had TOC Property Backed Lending Trust PLC (PBLT) — but it was too small to make the impact we’d imagined. Looking back, it was during that time that the Develop North of today was born — the strategic direction, the objectives and the aspirations changed materially following that meeting.

“I thought ‘I need to speak to someone who knows PLC world and has been hugely successful in that world’. I sat down with Graham and, for a couple of hours, I tapped into his knowhow and experience. The first thing he told me was that having established a PLC, the priority was to try and keep it. Graham was very clear — he said the benefit of a PLC is that you can scale through acquisition and, by its very nature, it brings credibility. So, we kept PBLT and sought to scale it.”

Settling on a dynamic new name was top of the list and Ian was immediately drawn to Develop North. “Does what it says on the tin,” he beams. No arguments there. “We wanted to create something that helped the region financially and socially — the name anchored us in the North East and drove our ambition.”

With the new name came a new strategic plan. “There was still the determination to help people achieve their financial goals and to remove concerns about their money,” explains Ian. “But doing something beyond that — to help the region — was an inherent feeling.

“As you get older — and perhaps you have children — you start to care a bit more about the world. As woolly as that might sound you naturally start to take more of an interest in what’s happening politically and socially. Those feelings fed into my thinking for what Develop North could be and what it could do.”

Ian doesn’t shy away from the fact that he’s in the business of making money. For Develop North to thrive it needs to deliver on investments and outperform rival funds. Those are the cold, hard facts of the relentlessly competitive financial world. Develop North is no charity but, in the broader sense, it can be charitable.

“Our main objective is providing a return to our shareholders,” Ian agrees. “We’re not a charitable organisation but we do absolutely believe in social value and social impact. We see that as a feed through from economic growth and shareholder return.

“The combination of devolved regional powers — and we anticipate working alongside the North East Combined Authority and the Tees Valley Combined Authority by complementing public sector investment with private sector money — and the Saudi ownership of Newcastle United means the spotlight is on our region right now.

“Those two things have created these tailwinds for the region from an investment perspective. What we’ve seen over the last few years is that the really savvy institutional investment managers — the likes of Blackstone, the Reuben Brothers, and the Singaporean Sovereign Wealth Fund — are starting to deploy their capital into the North East because they see the opportunity. That gives us huge confidence that our region is on the cusp of growth from an investment return perspective.”

But can a region that’s top of the league for so many of the wrong reasons — child poverty, low life expectancy and poor employability rates continue to blight the North East’s most deprived areas — really benefit from a profit-first Develop North?

“Our region is at the top of some really depressing league tables,” agrees Ian. “There are parts of this region where you only have to be a mile apart and the difference in life expectancy is 12 years. How is that a thing?

“We’ve got five top performing universities — including two Russell Group universities — in the North East and yet we’ve got some of the highest unemployment figures on record. Our employability levels are really poor and we need to fix that.

“So, a huge part of Develop North’s remit will be to maintain a laser focus on those key areas. We’re not going to be a generalist charitable funder — we are going to use our longevity as a company to try to tackle some of these social issues which are generational. That can only be achieved over a 20-30-year period, but when we deploy our money that is where we will look first.”

Despite a period of accelerated growth, the onboarding of a successful new strategy and broader brand recognition, Ian and his fellow board members recognised Develop North was still missing a key ingredient. “To take the next step we needed a recognisable and well-connected CEO, rooted in our region, with experience of both the public and private sector,” explains Ian. “A figurehead. As luck would have it I had a coffee with that person last year…”

Develop North chief executive Michelle Percy

By the time Michelle Percy left her prominent position as Director of Investment and Place last summer, one of the North East’s most proactive regeneration and investment leaders had held four key roles across nine years at Newcastle City Council. Prior to that, her private sector experience included oversight of a series of commercial and mixed-use developments. Develop North felt like the perfect fit.

“If you’re going to appoint someone to be chief executive of a PLC, they have to be an experienced business leader,” adds Ian. “They have to be credible. If we’re really going to push a North East business, we need someone anchored in the region. We needed someone who bought into the aspiration and ambition of driving social value through commercial enterprise.

“When Michelle became available it felt like the stars had aligned. I always say that I’ve been very lucky in business and this was another example.”

Michelle stepped into her Develop North role towards the end of January. Two months down the line and Ian reports the board’s key hire has hit the ground running.

“I probably underestimated just how connected Michelle is,” admits Ian. “Not just in the North East but also nationally and internationally. She’s also brilliant at managing people. We’ve been hugely impressed at how she can bring a team together quickly.

“Michelle is raising Develop North’s profile and raising awareness. That experience of the private and the public sector is priceless at this stage of our journey.”

So what does the future hold for Develop North? Flick through the firm’s website and the key numbers that flash across a clean homepage are hugely impressive: 12,000 jobs created with their help; almost £90m in real estate investment raised since 2017; 43 projects undertaken with 35 developers; and a gross development value in excess of £280m. According to Ian, it’s only the start. The surface has only been scratched.

“We are just at the beginning of the upward growth curve and it’s massively exciting,” he says. “It’s not unusual for businesses to take a number of years to build a solid foundation and become established. We had to get the timing right. We had to get the team right.

“The investment tailwinds are there. The right people are in place in both the public and private sectors. Now is the time to give our region the opportunity to make its mark.

“And that’s everyone. This isn’t just one person doing one thing. This is a collective. It needs to be collaborative.

“You’ve got to go back to the industrial heritage of this region. We came up with the steam train. We came up with the light bulb. The emergence of Develop North is another first of its kind example of the innovation and evolution that’s always enabled the North East to stand out from the crowd.”