446 lines
19 KiB
Plaintext
Executable File
446 lines
19 KiB
Plaintext
Executable File
finance
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newsbysector
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banksandfinance
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8422775
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-----
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# Sir Nigel Rudd and Stephen Welton say new investment fund will create
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'opportunities that don't currently exist'
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## Three and a half months ago, Sir Nigel Rudd was fighting a losing media
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war about the snow that paralysed Heathrow Airport before Christmas. Now the
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clocks have gone forward, spring has arrived and the BAA chairman is getting
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animated about green shoots.
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![Three and a half months ago, Sir Nigel Rudd was fighting a losing media war
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about the snow that paralysed Heathrow Airport before Christmas.][1]
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Sir Nigel, left, and Stephen Welton. The BGF also wants to invest in companies
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that have the potential to tap into markets not just in the UK but abroad too.
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By Andrew Cave 8:00AM BST 03 Apr 2011
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[Comments][2]
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More particularly, he's launching a new business - and it's a whopper. The
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Business Growth Fund (BGF), set up by Britain's top six banks and chaired by
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Sir Nigel, will have £2.5bn of capital to invest in small and medium-sized
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firms.
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In the medium to long-term, he sees it floating on the London Stock Exchange
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and entering the FTSE 100. In the really long term, he believes it could even
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be among Britain's 10 biggest companies.
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First, however, Sir Nigel and BGF's new chief executive, Stephen Welton, have
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to deal with why there's a need for this new investment company, founded with
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encouragement from the Government and capital from Barclays, HSBC, Lloyds
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Banking Group, Royal Bank of Scotland, Santander and Standard Chartered.
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Despite the business being backed by banks, Sir Nigel, a former deputy
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chairman of Barclays, understands why some might engage in bank bashing.
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"I've seen this from two sides," he says. "I've been an entrepreneur and I've
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also been director of a bank, and I've seen that banks are not good
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individually at investing long-term in equity in smaller businesses, and they
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are also reluctant lenders on a long-term basis.
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## Related Articles
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* [Business Growth Fund - fast facts and the men at the helm][3]
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03 Apr 2011
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"Also, the people in banks are not trained to do it. They're not the kinds of
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people who can advise on the management of a business. They're bankers."
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Warming to his theme in the BGF's temporary offices inside an ornate HSBC
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building in London's St James's, he sees the new fund as allowing banks to get
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back to doing what they do best.
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"Banks should be lending to small and medium-sized businesses on a short-term
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working capital requirement basis," he says.
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"But they've been lending to small companies, effectively providing fixed
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capital for a bankers' return, and there's been nobody in the market really
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providing equity for small businesses.
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"There's a real situation here. It's alright to go on bashing the banks and
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saying they should lend more, and probably they should. But they shouldn't be
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lending to companies really in substitution for long-term fixed capital, which
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makes businesses more stable so they can make better decisions and can grow
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with confidence."
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That, of course, was the reason the original 3i was set up by the Bank of
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England and the large British banks as the Industrial and Commercial Finance
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Corporation in 1945. It had a mandate to make long-term equity investments in
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growth businesses. Curiously, at the time, the justification was to talk about
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an "equity gap" - the exact term that Sir Nigel and Welton are using now. So
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why have we come full circle again?
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"3i is a very successful company," says Welton, who has spent 20 years in
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private equity and joins BGF from CCMP Capital, formerly known as JP Morgan
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Capital Partners. "But they no longer provide growth capital at this end of
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the market, notwithstanding that they started here, because they're a global
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firm now operating on a global basis.
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"What's happened over the past 20 or 30 years is that private equity firms
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have moved up the size spectrum and invested more capital typically in
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buyouts. Growth capital is something that's become less and less available. So
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this gap has naturally emerged as private equity firms have changed their
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priorities."
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So banks don't have the skills to invest equity in small business and private
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equity, which abounds with such skills, don't want to do it anymore.
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Welton looks uncomfortable with that summation of affairs, but that seems to
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be what the duo are saying.
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The evidence certainly suggests there is a need. The Rowlands Review,
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published in November 2009, estimated that, out of 170,000 UK small and
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medium-sized companies, 25,000 to 32,000 were in the growing and restructuring
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bracket with characteristics that make them suitable for growth capital
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finance.
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SMEs employ 13.7m people in the UK - 59pc of the total private workforce - but
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the recession and current austerity squeeze are having a severe impact on
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businesses seeking finance. The report estimated that between 1,300 and 2,100
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businesses will be unable to raise finance from any source, or encounter
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problems raising finance from the first source they approach.
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As the economy begins to recover, in the medium term, the report states that
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up to 5,000 SMEs per year could experience problems accessing growth capital.
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The upper limit of public/private provision is around £2m, while the minimum
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level at which private equity providers fund is typically £10m and over. The
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BGF, by offering equity investments of between £2m and £10m to small and
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medium-sized companies, is aiming help to fill that gap.
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So what is the BGF going to invest in? Well, let's do the negatives first.
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It's not going to be a bank, says Welton firmly, and it's not aimed at start-
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ups but at companies that have typically been operating for five to 10 years
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or longer.
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It also won't invest in financial services companies but it will be
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particularly interested in targeting firms in the media, leisure, environment
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and health-care markets.
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The BGF also wants to invest in companies that have the potential to tap into
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markets not just in the UK but abroad too. Welton is at pains to stress that
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behind the soft focus of a helpful funder it is going to be a profit-hungry,
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capitalist animal.
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"This is a private sector organisation," says Welton. "We have to make a good
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return like any other private sector organisation, and we fundamentally need
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to practice what we preach.
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"We're going to be supporting smaller growing profitable businesses that have
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good long-term futures and have to be run on sensible lines. We will be
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exactly the same.
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"We're a company rather than a fund. We're called the BGF because that denotes
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investment but critically we are investing off our own balance sheet, and that
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gives us two very significant advantages. It means we can take longer-term
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investment horizons without having to recycle money back to private investors.
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"We will be investing over five to seven-year horizons on average [and] as we
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realise gains from our portfolio we will reinvest that back into the business
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and into new companies. That enables us structurally to take a longer-term
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view, and that's extremely important."
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The model for BGF's bank shareholders, say Sir Nigel and Welton, is pretty
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straightforward. They will provide the capital to enable the fund to develop a
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business of scale and over the longer-term they will enjoy returns as a
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shareholder in what will be a significant investment institution in its own
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right.
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Formally launching over the next few weeks before opening to business next
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month, the BGF will have offices in Birmingham and Glasgow as well as London,
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and will quickly employ 100 staff.
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"The scale of the Business Growth Fund is something that would be very
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difficult to replicate," says Welton. "It needed six banks to come together.
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£2.5bn is a huge amount of capital for the smaller company sector. An
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individual bank providing a portion of that we don't think would be as
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successful because of inherent conflicts of interest.
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"In the size frame of providing £2m to £10m there isn't really an institution
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of any scale in this country that's providing that today. And there's an
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opportunity to create demand as well as respond to demand that may come across
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the door.
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"There are family companies that have never thought about bringing in an
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outside partner. If we can convince them that this is genuinely a different
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opportunity for them and that we're in it for the long-term, we'll be creating
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something in terms of opportunities that doesn't currently exist."
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So how did these two get involved? Sir Nigel, a past chairman of Pilkington,
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Alliance Boots and car dealership Pendragon, which he founded with one
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dealership in 1982, claims some credit for the idea of the BGF, saying he's
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been talking about the need for it for some time. He raised the idea with both
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David Cameron and Lord Mandelson before last year's general election.
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He wasn't that surprised to get the headhunters' call, then? "They said: 'We
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hear you've been going on about this. Would you like to be put on a list to be
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chairman?' I said: 'Absolutely. It's something I really believe in'."
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Welton, who before joining CCMP was chairman and chief executive of TV Travel
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Shop, a television distribution business in the UK and Germany, was looking to
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do something a bit different.
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"As we come out of recession we think there's going to be a lot of interest
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from the business community at large for genuinely long-term capital which
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isn't currently available," he says.
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"It's important for us to be very clear about what it is we are doing and why
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it's different, because there's an element of cynicism about the financial
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services sector generally at the moment.
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"We're providing something that isn't available and our job is to communicate
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that to entrepreneurs and family companies that - as they think about how
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they're going to grow their businesses over the next five to 10 years - we
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will be able to provide capital and work alongside them as partners to achieve
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that. That's an exciting and very positive message.
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"It's now been set up and it will be around we hope for decades," says Sir
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Nigel. "This is a new company that's going to be in existence for a very long
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time. The ambition over time will be to float it as a public company but
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that's way in the future. There won't be pressure on this company to sell its
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investments.
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"If they're good companies we'll continue to keep the investments and enjoy
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the dividends or whatever the returns are. So it's not similar to a venture
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capital fund in any way in that respect. We're making long-term investments in
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companies and supporting them."
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So what about the opportunity to invest in the BGF itself? Sir Nigel laughs.
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"I'm 64, so I think I'll be well gone from the company before that happens.
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We're building a very long-term business here."
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As for Welton, he's only 50, so he might just get to take BGF into the
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FTSE100. If he can prove that the fund is just what business needs as the
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economy climbs back to health, he will deserve to.
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Nigel-Rudd-and-Stephen-Welton-say-new-investment-fund-will-create-
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opportunities-that-dont-currently-exist.html
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= "Sr. SAP BW Lead Project Manager(2000 openings)"; var description = "New
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York On Application"; var link =
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"http://jobs.telegraph.co.uk/job/673761/permanent/new-york/sr~2E-sap-bw-lead-
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project-manager2000-openings-job-vacancy.aspx?FromRSSFeed=-1010&WT.ac=673761";
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var imageUrl = "http://jobs.telegraph.co.uk/_resx/images/TGJobs-
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logo_140x87-v2.gif"; var adWeight = "1"; puffArray.push({'id':guid,
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'headline':headline, 'bodyText':description, 'link':link, 'imageUrl':imageUrl,
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'weight':adWeight});
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