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Cameron endorsement was a sign Sigma Capital had arrived

Graham Barnet suspected that his 18-year-old creation, Sigma Capital, had finally arrived when the AIM-listed Scottish company's big announcement two months ago included a ringing endorsement from David Cameron.

Regeneration GAME: Sigma founder Graham Barnet says it is pleasing to be involved in a business that can be genuinely seen to improve people's lives.
Regeneration GAME: Sigma founder Graham Barnet says it is pleasing to be involved in a business that can be genuinely seen to improve people's lives.

Sigma's AIM-listed shares, which started the year at 6p, rocketed from 26.25p to 40.5p on news of the deal with Shariah-compliant Gatehouse Bank to support the roll-out of a £700 million programme of rented housing, beginning with 2000 homes in north-west England.

"It is pretty unheard of for a company our size to have that level of support in a stock exchange announcement," Mr Barnet says.

"I did tell everybody they were mad not to buy the shares at 5p, that was the wrong price."

He says central government has been "extremely helpful in assisting us with the delivery of the model - it wasn't just a political soundbite".

Sigma, in its fourth incarnation, has turned itself into a community regeneration specialist, and thus a potent force in the political battle to build new homes for the UK.

Undaunted by Sigma's setbacks in technology, property and green energy, as market fashion changed, Mr Barnet cautiously suggests that he has now got his timing right. He said: "I have been through three presses of the re-set button in my career... there are only so many times you can turn a corner."

Sigma's shares are still more than 50% below their 2000 flotation level but Mr Barnet says: "It's a very nice position to be in, when your share price is significantly higher than just about any shareholder has paid. You look forward to shareholder meetings."

Sigma floated in April 2000 as a successful tech sector bank, but found itself stranded as the technology tide went out and high-rolling investors deserted. "We were probably late by a year," Mr Barnet admits. History repeated itself eight years later with Sigma poised to launch a new £100m energy fund when the crash came.

"I am quite pragmatic and you can't bind people to a 10-year commitment," Mr Barnet says, while applauding the loyalty of Sir Tom and SSE.

Mr Barnet, son of the senior partner in a Fife law firm and educated at Fettes College and Edinburgh University, had cut his corporate finance teeth with Noble Grossart, Hamish Grossart's EFT, and Shepherd and Wedderburn, before setting up Merchant Investments in 1993.

"I had been involved in property development at a personal level," he says. "The thing about a crisis is you have two choices: you spend the next five years trying to recover 50% of the value you have lost, or you start from scratch, get into the bottom of the market and build real value from there."

Mr Barnet is the biggest shareholder with around 20% and management has another 10%. He recalls: "Three or four years ago I went to shareholders and said I don't know what the outcome will be but there is something significant here - we have got control of large parcels of land, the development value runs to £2 billion, I have to find a mechanism for unlocking that value - to put it bluntly they didn't have a lot to lose, and they knew we were highly motivated to produce something."

Sigma was already managing the largest single housing development in Scotland, at Winchburgh in West Lothian, on behalf of Sir Tom Hunter's West Coast Capital, and it was the Hunter connection that sparked Sigma's new incarnation. When Sigma switched to sustainable energy in 2004 it attracted high-profile support from SSE, Bank of Scotland and WCC. In 2011 Sir Tom, who held 22% of Sigma's shares, reduced his stake with the sale to Sigma of regeneration specialist Inpartnership, which had secured partnerships with the local councils in Liverpool, Salford and Solihull.

Mr Barnet says: "They were very good in the public sector piece, we had a broader range of development skills and greater focus on the capital markets."

The new mission was to work with local authorities to produce regeneration plans founded on quality rented housing, in the right place next to schools and transport, and at big enough scale to make a difference. Sigma has partnered with a national housebuilder (Countryside Homes) and property specialist (J&E Shepherd) to create an investable programme that can unlock private capital.

Mr Barnet observes: "The average landlord owns four properties. It is a terrible experience for most people renting from a small landlord...

"We want to create an experience where people can go on the website and whether they are paying £750 a month to rent or £175,000 to buy, it will be the same quality experience. That will create more sustainable stable rented communities which people can take pride in."

He adds: "It is important that we are dealing in larger tracts of land because we are building at a faster rate, and they (councils) are getting a much bigger impact on the regeneration strategy: five times as many new, quality homes, five times as many people paying council tax and doubled up by the government... but just turning up with a bucketful of cash doesn't get you the results."

But getting that bucketful has been Sigma's key role.

Mr Barnet notes: "Residential property as an asset class has consistently outperformed every asset class, so it is perverse that in the UK it has not had an institutional stamp on it, it tends to have been the domain of the social housing provider."

Enter Gatehouse, a Shariah-compliant investment bank with a real estate portfolio worth more than £1 billion across the UK and US, which will deliver the equity element of the venture, while negotiations are in progress with other banks for debt backing of the initial phase.

"We had a number of parties who bid to provide the capital, none of them were UK-based, having said that all the large UK parties including pension funds are committed to this space. What they have struggled with is transforming the model they are used to."

The private rented investment offers a 50-year asset with a fairly predictable income stream, with little development risk because councils are behind it, and "not a quasi-bond as it was with social housing", Mr Barnet says.

He concludes: "While I am not suggesting Sigma is a philanthropic organisation, it is extremely pleasing to be involved in something where you are genuinely improving people's lives."

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