The Path to Profitability

This has been a significant year for our organisation. Our first as the National Wealth Fund and one where we have accelerated our investment activity across a wide range of sectors, technologies and communities. Our most recent Annual Report and Accounts tells this story. Published today for the fiscal year ending March 2025, it shows how we have continued to build out the NWF to accommodate our newly expanded mandate and step up the scale of our ambition.

Those who have followed our journey closely will know how far this organisation has come in the last four years. But that journey is far from finished. In our early stages, we built an organisation from the ground up. Growing our deep investment expertise and skills through the recruitment of a permanent workforce at our Leeds headquarters while implementing the robust systems and processes that we need to deliver on our mission. With this as our foundation, we have been able to spend our most recent years building and expanding our portfolio, deploying capital at scale in projects and companies that support government’s growth and clean energy missions.

During the last financial year, we significantly increased the amount of capital we committed, compared with the year before. We undertook 19 deals while increasing our total investments to £2.3bn, including transactions across all five of our original priority sectors – clean energy, transport, digital, water and waste (subsequently changed through a strategic steer from the Chancellor). In the process, we mobilised £2.5bn of private finance and created or supported more than 18,500 jobs.

As we make investments and grow our balance sheet, we are also helping drive increases in our income. In our latest Annual Report, you will see that we have nearly doubled our financial assets under management during this period as we continue to accelerate our investment activity. Our expanding portfolio of loan investments has significantly contributed to income growth, with net interest income and fees increasing by more than 89% during this financial year. However, while this has created a strong foundation, we are still not at a size where the portfolio generates sufficient income to absorb provisions for future credit losses.

We invest to make an impact, and that means taking on risks the market is unable to, or at a concentration the market would not. Our appetite for risk has grown alongside our remit, as has our economic capital limit, giving us the capacity to take up to five times more risk (per £ invested) than commercial banks. This means we can undertake higher-risk investments in first-of-a-kind technologies and nascent sectors, as well as supporting investment-grade projects experiencing market capacity limits. 

The Treasury Select Committee noted in a recent report on the NWF that it is “important to understand that some companies that the NWF invests in will fail, and the NWF will lose the value of some of its investments.” In fact, if this wasn’t the case it would suggest we aren’t taking enough risk. While each of our investments is intended to make a positive financial return, our higher risk appetite will inevitably lead to some losses or impairments and to potential volatility in individual years. We prudently recognise expected credit losses (ECLs) at the point of financial commitment, which is a required accounting treatment and does not necessarily result in cash outflows. The more risk we take, the higher the recorded ECLs. This year, we have seen this provision increase, reflecting the growth in our portfolio as well as significant increases in credit risks on some assets.

A loss was expected at this stage of our journey, but it was higher than budgeted in large part due to challenges in the digital infrastructure sector. This is a sector in which we have a high concentration of investments, having widely supported the roll-out of full-fibre broadband to underserved communities across the UK. It is also a sector which has faced well-documented fundraising challenges caused by adverse market conditions. 

We typically invest for the long term, with an average length of investment of eight years, and achieving a positive financial return will always take time. In future years, as our income continues to grow, we will have the capacity to absorb such losses and volatility in individual years. We continue to expect profitability at a portfolio level to come by the end of this Parliament.

There is considerable excitement and opportunity in the air as we look ahead to the next four years. We continue to build our capabilities while increasing the pace and ambition of our investments. From financing first-of-a-kind technologies like Highview Power’s commercial-scale liquid air energy storage (LAES) plant that will be critical on the path to net zero, through to intervening in sectors that have a pressing need for finance, such as unlocking large-scale retrofit of social housing across the UK with new financial tools.

There is much that we can be proud of in the last year, and we look to the future from a position of strength, with the skills, expertise and strong foundation needed to execute on our mandate and deliver for the UK. Profitability will come, and we will continue to be transparent with you on our journey to get there.