The great scientist is not the one who gives the right answers, but who asks the right questions. And I became fascinated and sort of almost in love with being able to bring together science, innovation, and the opportunity to make outsized financial returns. This wealth of IP in the UK, where and how world-class is it? The UK has about sort of 10 to 12% of all of the IP that matters. The enduring brands of the likes of Oxford and Cambridge and Imperial, and we're the third country in the world to get to a tech sector worth more than a trillion. Less well known is how strong we are in the clean tech space, in the energy transition space. The job at hand is to take the UK from being almost like the World Science Lab, which we're fantastic at, to being a place where we can grow, nurture, keep many businesses at scale that solve global problems and serve global markets.
Welcome to Moneym Curated podcasts. We created this spin-off channel to highlight a selection of innovative firms in the finance sector and beyond. If science and innovation hold the keys to tomorrow's kingdoms, then their successful discovery, nurturing, and commercialization will give advantage to the nations where they are found and built and offer the potential for significant investment opportunities. As the question is posed, are we entering the new industrial revolution? It seemed an ideal time to welcome the CEO of one of the UK's specialized publicly listed investors in early and late-stage science and innovation, Greg Smith, CEO of the IP Group. Welcome today for a Moneym podcast curated episode. Very good to see you. Well, I have immersed myself in your specialist topic. It's a bit like a mastermind question. And read that the great scientist is not the one who gives the right answers but who asks the right questions. Well, as anybody who knows me will know, I am not a scientist. But let's see in this conversation if we can understand your mission, IP's business and its opportunities, UK innovation in terms of where it sits and how world-class is it, sourcing opportunities, where and why you're most excited, some live company examples, the hurdles in the UK to commercializing and retaining more of the great innovations here. IP itself, the vehicle, the discount and net asset value, the risk-reward here, and how you see the opportunity for the IP Group to unlock the potential to help turn British innovation into more growth. Short agenda, Greg. Indeed. Just give us a quick glimpse of what came before the IP Group for you.
So, I would say I've definitely been a closet scientist. Sometimes sort of in, sometimes out of the closet from a scientific point of view. I read mathematics at university. I got sort of, I wouldn't say captured by the thrill of accounting, but after university came down to London and trained as an accountant in the financial services bit at KPMG. Covered a lot of diversified both insurance and asset management and investment vehicles. After a period of time there, I left and went to join a fund of hedge funds in the west end of London. Real insight into different vehicles, different alt vehicles, ways that you can make money. And found that a fascinating journey. At the same time as I was growing with that business, we grew that business when I was there from about $750 million under management to about $3 billion. I was helping to build out all of the operational side of the business. And at the same time, an ex-colleague of mine was busily growing another business through its early stages and that business was what became IP Group. And I became a mix of fascinated and sort of almost in love with this concept of being able to bring together science, innovation and the opportunity to make outsized financial returns in one place. And so I left the fund of hedge funds. At the time I was told, you know, you'd be crazy to leave hedge fund world. That's where you make all the money. But I was led by the ability to have purpose and have impact as well as be able to create a financial return. And so I joined IP Group about 17 years ago now. And grew with that business. I was CFO from 2011 through to 2021. We did a lot. We had some international expansion, a couple of acquisitions. We got a couple of regulated entities and so the business that I took over as chief exec of in 2021 offered this really interesting opportunity to bring together science and technology and bring together capital and hopefully create outsized returns for investors. And you're always learning. You make loads of mistakes, that's sort of you got to be very humble about that and recognize the role that sort of failure plays, but hopefully I've now got the business after a couple of years in the seat of CEO, really well positioned for the job at hand. And I think the job at hand is to take the UK from being almost like the World Science Lab, which we're fantastic at, to being a place where we can grow, nurture, keep many businesses at scale that solve global problems and serve global markets.
We're going to come back to that because somebody wants to refer to the UK being one of the world's great petri dishes for such ventures but a failure to capitalize them sufficiently. Now, the IP Group is listed and I wonder if you could just give us the topco view of your businesses because whilst you're a listed company, you have three pools as I understand it.
Yeah, that's right. I mean, we're probably best known and I don't know if this has made its way through to the markets yet. We're probably best known for the fact that we are a listed balance sheet. So we have about a billion pounds worth of investments predominantly into private businesses, all with an IP theme around them. So most of those businesses have originated off the back of years of government funded research into science and technology of the future. But over the last few years, I've been diversifying out the pools of capital to make them more stage relevant. And so in addition to the billion pounds we have in the listed vehicle, we also manage about half a billion pounds in tax advantaged EIS capital in the UK. We have that under a brand, Parkwalk. Probably one of the best growth brands in the UK as measured by awards won and repeat customers and returns. And then over the last sort of five years or so, we've also been building out what you'd call venture growth. So in venture parlance, sort of Series B plus, Series C, so quite a lot of the technical risk is out and a lot of it is moved to commercial risk, and we manage about 200 to 250 million pounds currently in that space. Most of that money is for Australian pension funds. So we have a great partner in the form of Hostplus, one of the top 10 superannuation funds in Australia. And I think there's a real opportunity to expand out that scale-up side of things, because that's where there's a real gap in the UK at the moment, and with gap read also opportunity for us to make some really compelling financial returns and to grow some very compelling businesses here.
So, we're going to come to several of those, but why would an Australian entity come to you? I suppose you'll have read in the press or if you've looked at anything around the capital markets industry task force and what they're trying to do to reinvigorate the UK listed markets. And what's being tried to happen with the Mansion House Accord, which is things around how do we appropriately encourage some long-term capital to have some more allocation to risk assets, to productive assets. And one of the sort of cited stats which always is quite newsworthy and catching is the fact that a year or two ago, teachers in Ontario had a greater allocation of investment to UK growth and technology in just one company than the entire rest of the UK long-term pools of capital did. And it was raised as a flagpole because it was partly an embarrassment factor and partly it was a look, here's the opportunity. There are some very well-regarded investors. And I suppose that's a long-winded way of saying the superannuation funds in Australia, partly because of the rules that they have over there around the level of mandatory commitments that people have to make, but also partly around the fact that if pension funds don't perform in Australia, they are mandated to come together and become greater to scale and hopefully therefore return better returns for their investors. And that has led to an ability for them to make greater allocations into productive assets. So infrastructure, PE, VC, property, and our relative allocations in the UK are lower. And so I think in Australia, the superannuation funds were typically allocating because there's not much domestic venture market in Australia. So they were typically allocating capital to US VC, to some European VC, and there was a desire to create a local ecosystem.
Our success in the UK at helping to create this ecosystem around commercializing science from universities obviously caught their attention. And so we partnered with the Group of Eight most research intensive universities in Australia. And at the same time we entered into a relationship with Hostplus to provide private capital. But the intent was they wanted to invest at the appropriate stage, which was sort of Series B+ and there weren't any companies in Australia really that were originated from universities. So they started to invest with us in some of our UK based companies, some of our US-based companies, and we showed them a good track record and that has enabled them to help create the ecosystem in Australia. We've got a portfolio of, you know, 10, 15 companies, some of which they've now invested in directly. I'll tell you about some of them in the future. Lots of sort of energy transition and ways to get critical minerals out of the ground in a more efficient way. So there's some fantastic businesses. But I think they came to us because we had that experience of having created an ecosystem here and there was a desire to do that in Australia and we've been able to show them good financial returns.
Got it. So you identify, you invest, you nurture science and technology businesses. And so one of the questions as I was thinking about this and we've had Pete Davis from Lansan on the show and we've talked about this wealth of IP in the UK. I guess from where you sit, where and how world-class is it?
Well, Pete has been a big supporter of IP Group. You could definitely say IP Group wouldn't have been around without Pete's support over the last 20 years. So we share many similar views on the opportunity for the UK to really outperform in this area of investing and Pete's been a big advocate of that. In terms of where the UK is differentiated, fundamental science and technology comes from many times from universities and we are very lucky in the UK that we have four of the top 10 universities globally in terms of IP output. In fact, the UK has about 10 to 12% of all of the IP that matters, the leading IP. And we're sort of second and third only to the likes of the US. So the US has about 40%. So there's a very rich heritage. And I think one of the enduring competitive advantages, or one of the enduring places where we compete internationally, is on that intellectual property. And it's not a partisan "Brits are brilliant at science and no one else is." Those world-leading institutions attract the best minds to come and apply their trade in the UK and they bring their families and they bring their research teams. And I think the enduring brands of the likes of Oxford and Cambridge and Imperial and many other universities in the UK is a real competitive advantage. So there are areas within that space where we are particularly strong. I would say the tech sector in the UK is globally interesting. We are the third country in the world to get to a tech sector worth more than a trillion, behind only the US and China. So we're obviously doing something right. But the fundamental research, I mean, that stat is probably quite well known. Less well known is how strong we are in the clean tech space, in the energy transition space. The UK is one of the few areas that's continued to have heavy investment into better ways of extracting and transporting electrons, better ways of extracting critical minerals, better ways of extracting things like hydrogen. And a lot of that comes from the research side of things. So there are a number of areas where the UK is very strong from a research point of view, and the trick of course is to try and work out which of those can be commercialized and which of those can be commercialized at scale.
Right? Which of course leads me to my next question which is the investment process, which is a lot of universities producing some extraordinary stuff. How do you go about the screening, selecting, narrowing, checking, investing in partnership is probably how I'd best describe it.
IP Group has been built on long-term partnerships throughout our history. Long-term partnerships with investors, long-term partnerships with co-investors, and long-term partnerships in different forms with sources of great innovation and technology. The current structure in the UK, you can think of it a bit like we are the GP. We're the general partner for the university alumni funds of Oxford, of Cambridge, of Imperial, and of a few other universities around the country. Well, we'll add a couple, and that's all done through our Parkwalk brand. And as I said, I think IP Group is probably best known as a balance sheet investor, but over the last year or two, a very deliberate change in strategy has been to move the vast majority of our early stage sourcing, so that sort of what would be called pre-seed and seed investment, so relatively small amounts of money, a few hundred thousand up to a few million. All of that is now done for our universities through the EIS capital that we manage for our clients at Parkwalk. We have about 7,000 clients. They benefit from some very good UK tax reliefs, and we benefit from therefore a very wide pipeline. But we manage those alumni funds in partnership with Cambridge, with Oxford. And so we're doing 40 to 50 new spinout type investments each year, and shareholders in IP Group don't invest those early checks, but they benefit from those that come through the process and then they become investment candidates. So in the very early stages, a lot of the work is around: is the technology differentiated and viable? What do we think about the team? But I think importantly, really importantly, is how can we very quickly validate the commercial opportunity? And it's not as simple as just calling up a customer and saying, do you want to buy a portable DNA sequencer? Because they're like, I guess so, if it existed, of course I'd be interested. Or, would you be interested in a way to extract lithium from a brine field that doesn't require excess water? So there's a very sort of high level version, but it's about having the skill to be able to talk to potential customers about what would it take, what would the product need to look like, if this was available now, how would you buy it, how much would you buy? And so a lot of the work that we do is around not just understanding the science (we've got a number of PhD trained individuals in the business that can talk that language and understand the science) but it's also about the commercial application of that science and trying to get a handle on the holy grail of venture, which is product market fit. How do you find product market fit, particularly when there isn't necessarily a market to go after? So that's a lot of it is around the commercial DD.
And you made an interesting point and I'd observed it in your materials, that under your stewardship as CEO, you've moved the sweet spot away from predominantly venture to more later stage growth. Just explain a little bit about why you thought that was important and what it does to the portfolio.
Yeah, I mean I guess my sort of observation having been doing this for 17 years is we thought that a single permanent vehicle could do the whole journey from pre-seed to pre-IPO and then largely you would exit at the point of IPO or, well, IPOs have been a rare beast in the last few years, but hopefully that will return. But to sort of mature exit, and I think our learning is, particularly in the UK, doing the very early stuff is so difficult that the UK government gives individuals 30% tax relief to invest in that to encourage people to invest in that space, and also gives you loss relief if the companies don't work and is free of capital gains tax. So it's a really well-structured scheme, this EIS scheme. And we obviously speak to various parties in Treasury and in the government and there was some risk that it might not be continued. We in the EIS industry association did a lot of work to explain the massive impact that EIS investing has in the UK. Something like just under half of all unicorns in the UK have had EIS investment along their journey. So it's really valuable as a source of IP. But with that in mind, it makes a lot of sense for our shareholders to have that bit of the investment journey done with stage appropriate capital, right? And then as those entities, I mean lots fail, that's by definition, by design. If lots of things didn't fail, there wouldn't be a need for tax reliefs. So I think the idea is you can build a very broad pipeline off balance sheet. Shareholders benefit from fees, they benefit from performance fees if we do a good job, and our investors are high net worth investors who invest through that platform also get a good return and a good tax-adjusted return.
So you look a lot at life sciences and technologies. Tell me a little bit about how you think about that sort of portfolio allocation because lots more demands on your capital than there is the ability to allocate.
That is absolutely true. It is always thus, so there's always more opportunity than capital. So we are a deep tech investor. If you look up, if you ask Perplexity or somebody, give us a definition of deep tech, it will explain that it's things that are transformative businesses. And often they are based around things that improve healthcare outcomes, things that improve energy efficiency or cleaner energy, things that are related to the huge explosion in machine learning and AI. So that's everything from novel computing chips to different types of memory to how you interface with a machine. If you think, at the moment we're gradually moving away, I've got a stylus here, we're gradually moving away from the keyboard and the mouse. And you'll know the story: the keyboard, all the keys are in a certain order because that was a mechanical device and it would, having the keys that were regularly pressed in the middle to have a lower amount of mechanical effort was the right thing to do. It's not really very relevant for the digital age. So there's lots of opportunities to have a different approach. So we focus on really those three main areas: technologies that contribute to a healthier future, technologies that contribute to a tech-enriched future, and companies that contribute to a more sustainable or a regenerative future.
