Wales Life Sciences Investment Fund

25 Feb 2016 - 9:00am

‘Aspects of its establishment, governance, oversight and early operation were flawed and poorly documented’, says Auditor General, but the concept of the Fund is innovative and has many merits.

The Auditor General has today published his report on the establishment and oversight of the Wales Life Sciences Investment Fund. The report looked at the establishment, governance, oversight and early operation of the Fund and examined whether the Welsh Government and Finance Wales established the Fund and oversaw its initial operations (including its first three investments) effectively.

Overall, the report identified that:

  • A conflict of interest was appropriately declared but should have been handled more robustly by the Welsh Government;
  • The decision to procure a fund manager was poorly documented, with no contemporaneous records to demonstrate that contracting a fund manager would provide better value for money than the recruitment of specialist staff by Finance Wales itself;
  • There were some significant shortcomings in Finance Wales’ procurement of the Fund Manager;
  • Neither the Welsh Government nor Finance Wales are able to provide adequate justification for the totality of their payments to the successful tenderer under the interim arrangements;
  • The oversight arrangements put in place by Finance Wales were insufficiently robust, and as a result one aspect of the Fund’s investment in ReNeuron Plc was not handled in accordance with the Fund Management contracts;
  • The Welsh Government’s award of in-principle financial support to ReNeuron Plc did not comply with its usual business processes, and it is not possible to confirm whether it handled appropriately a clear conflict of interest that had been declared to it;
  • Conflicts of interest regarding the Fund’s third investment had been properly managed by all concerned, and to date Finance Wales has not identified any concerns regarding the handling of conflicts in the Fund’s subsequent investments;
  • Neither Finance Wales, nor indeed the Welsh Government, are currently able to exercise any contractual control over the arrangement fees charged by the Fund Manager, as the scope for levying such fees was overlooked during the procurement process;
  • By opting to relinquish its’ contractual right to remove the Fund Manager without cause, Finance Wales has reduced its ability to exercise control over the fund management contract and undermined its own legal power to intervene on arrangement fees; and
  • The Welsh Government has yet to determine the extent to which it expects private-sector entities that are contracted to manage and deliver public services on its behalf to comply with the Nolan Principles.
  • The Auditor General found no evidence that the Fund Manager is acting in any way improperly or incorrectly in applying a commercial approach to the management of the Fund.

The report contains nine main recommendations to the Welsh Government. These recommendations are intended to support and improve well-managed risk-taking and good governance, rather than to stifle innovation. In the Auditor General’s view, it remains important that the Welsh Government continues to explore new ways of supporting its policy priorities that are sustainable and harness the skills, experience and finance of the private sector.

The Auditor General, Huw Vaughan Thomas said today:  “The concept of the Wales Life Sciences Investment Fund is innovative and has many merits.  This report addresses a range of weaknesses in the Welsh Government’s and Finance Wales’ establishment of the Fund and in their oversight of its initial operations.  These findings underline the continuing need for strong governance in this age of austerity. Many of my report’s recommendations apply more widely to other arms-length operations of government, and all are intended to support and improve well-managed risk-taking and good governance.”


  • The ‘life sciences’ (primarily biology, medical bio-technology, genetics and related disciplines) are a significant and growing driver of economic growth in modern industrialised nations across the globe, and many governments are either investing or supporting investment in this important business sector. In Wales, the Wales Life Sciences Investment Fund (the Fund) was announced in March 2012 by the Minister for Economy, Science and Transport.
  • The Fund is a dedicated equity fund that is held on behalf of the Welsh Government by Finance Wales Plc (Finance Wales). The Fund has a target investment value of £100 million for investment in life-sciences businesses located, or to be located, in Wales. To date, the Welsh Government has committed £50 million, with the initial expectation that a further £50 million in match funding will be attracted from the private sector in due course by the contracted Fund Manager, Arthurian Life Sciences Ltd (the Fund Manager).
  • In March 2015 the Fund Manager announced its intention to seek to raise £150 million or more from leading worldwide institutional investors. The Fund Manager’s intention is that this will be available for investment in the life sciences sector in Wales, to back the Fund’s current investments and for co-investment alongside the Fund in new investments. The Fund Manager’s ambition is to create an investment portfolio of 25 to 30 companies, alongside support for university research and commercial spin-out activities, together with any further Welsh Government funding commitments and the scope to attract additional Limited Partners into the Fund itself.
  • In September 2013, the Auditor General received an enquiry via the Chair of the Public Accounts Committee from a member of the public relating to the Fund’s August 2013 investment in ReNeuron Plc. In response, the Auditor General decided to conduct an audit review of the establishment, governance, oversight and early operation of the Fund. On behalf of the Auditor General, Wales Audit Office staff have examined whether the Welsh Government and Finance Wales established the Fund and oversaw its initial operations effectively. References in the Auditor General’s report to ReNeuron Plc. do not imply any criticism whatsoever of the company itself.
  • It is important to note that this audit report does not consider whether the investment performance of the Fund itself is delivering value for money. This is because such an assessment can only sensibly be undertaken once the Fund has established a longer track record of overall performance against its targets for investments and the securing of private-sector match-funding.