EXECUTIVE SUMMARY
As a financial-intermediary, NEL Fund Managers Ltd. (NEL from hereon), serves its investors commercial and public sector needs for returns and social impact. NEL, an independent fund-management company, meets these needs by placing its client's money into businesses with financial and employee numbers’ growth-potential typically using mezzanine-debt products.
This business project addresses the issues and challenges faced by NEL in exploring new areas for market growth that utilises their existing knowledge and core competencies. For this purpose, the scope of the project incorporates a thorough competitor analysis of the industry so as to gain a market insight using qualitative and quantitative techniques.
For reviewing the investment-market within the financial-services sector, and for positioning NEL in this field, the project first investigates the external-environment using PORTER’S FIVE-FORCES-model as it is a simple yet powerful tool for understanding the competitiveness of the industry as well as for assessing the strategic positioning of the firm. Next, internal-analysis is performed using the VRINE-model for determining the competitive advantage that NEL secures with its resources and capabilities. This will help NEL understand the competitiveness in the industry and accordingly it can differentiate itself by providing its clients with some unique services.
For understanding the past performance and present position of the firm, the financial statements of NEL are analysed against its competitors and are assessed using the profitability, liquidity, activity turnover and leverage ratios for the past five years (2011-2015). Looking within the finances and the company’s developments over the past five years will provide NEL’s board with an outline of actions that would assist them in improving their profitability and gaining market share. The list of competitors includes: FW Capital, River Capital Partners, Northstar Ventures, IP Group, Maven Capital Partners, Alliance Fund Managers and Enterprise Ventures.
To build the research further, primary data is collected by interviewing the internal (employee) and external (investors) stakeholders so as to survey the crucial-factors that affect the investor’s decision-making in the procurement of fund managers. Evaluating what the investors are looking for will facilitate the firm to identify possible areas of improvement and thereby, summarise the findings of the business project.
Based on the analysis of NEL’s financial statements and the quality of its management team against its competitors, the following strategic recommendations are proposed, which will enable the firm to strengthen its strategic positioning within the industry –
ϖ Firstly, NEL should focus on expanding their network of investees so as to secure and manage more number of funds and henceforth, become a leader of the north-east region. NEL needs to recover its losses and improve its management’s productivity levels.
ϖ Secondly, NEL should also explore other regions of England including north-west region, Yorkshire and tees valley as they offer opportunities for fund managers to exploit and attain superior profitability. As a result, NEL will be able to diversify its portfolio of clients and increase its market reach across UK.
ϖ Thirdly, NEL should increase their team members’ compensation extrinsically along with motivating them intrinsically because an analysis of the management costs proves that when employees are paid more their productivity and efficiency levels are at the highest which as a result bring in greater revenue for the firm. NEL has the highest percentage of qualified professionals within the industry who have worked with them for more than 10 years. However, NEL has the second-lowest turnover and cost per employee within the industry. Therefore, NEL can improve their profit margins by increasing their management costs, but the revenues should increase by a higher margin than the increase in the administrative expenses so that NEL achieves both higher efficiency and profitability.
ϖ Fourthly, since the suppliers have great power in the industry, the fund managers need to make consistent efforts for attracting more investors through powerful marketing techniques. Whilst NEL effectively networks and maintains good relationships with significant organisations and investees, they should also market themselves more aggressively by improving their website and LinkedIn profile.
ϖ Lastly, an investigation of the external forces identify the uncertainties caused by Brexit regarding the sourcing of funding and thus, NEL must make efforts to attract investors. NEL should be more creative in its approach for identifying alternative sources of investment like the UK Government and private banks.
To conclude, NEL has already created a niche for itself in such a competitive environment. These strategic recommendations will help them to exploit more opportunities by efficiently utilising their competitive advantage and henceforth, secure an advantageous position within the industry.
1. INTRODUCTION
An independent fund management company owned by its employees, NEL was set up in 1989 to provide unsecured-loan funding to regional businesses. The company provides tailored financial products to small and medium-sized businesses based in the north-east of England to meet their needs and those of their funds' investors. As the north-east region’s most active business investor, it has till date managed 15 funds with a combined value of over £90 million, including £23 million in the new – “Finance for Business North East Growth Fund”. Moreover, it has invested in over 200 regional companies in the past five years itself.
NEL is long established fund manager that specialises in boosting local economies by financially strengthening small and medium sized businesses (SMEs from here on). They offer unsecured funding solutions in the form of mezzanine debt and equity financing. Therefore, the investment firm offers venture capital services along with providing its investees with mezzanine capital financing. The size of investment typically ranges from £50,000 to £400,000 with an upper limit of £750,000.