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Exodus from LSE.

 

LSE
The string of depar­tures and pro­spect­ive moves from Lon­don under­line the UK’s dif­fi­culty in attract­ing and retain­ing com­pan­ies, des­pite the Brit­ish gov­ern­ment’s attempts to rein­vig­or­ate the City and lure busi­nesses away from rival exchanges. Exec­ut­ives  see the US as an envir­on­ment that embraces higher growth while they lament the lack of interest from UK-based investors in their home mar­ket, par­tic­u­larly pen­sion funds that have increas­ingly shunned Brit­ish stocks over the past two dec­ades. The amount that has been alloc­ated to UK equit­ies has dropped dra­mat­ic­ally over the last 20 years in favour of fixed income, and that raises some inter­est­ing ques­tions. Hold­ings of UK-lis­ted com­pan­ies by Brit­ish pen­sion and insur­ance funds have plunged from about half of their port­fo­lios to 4 per cent over the past two dec­ades, accord­ing to data from Ondra.


This shift in asset alloc­a­tion was partly driven by a significant account­ing change in 2000, which forced com­pan­ies to recog­nise pen­sion fund defi­cits on their bal­ance sheets. UK pen­sion fund hold­ings of fixed income surged from 17 per cent in 2000 to 72 per cent in 2022, the Ondra data shows. Richard Mar­wood, head of UK equit­ies at Royal Lon­don Asset Man­age­ment, said pen­sion reform and incent­ives for invest­ment in domestic equit­ies should be a primary focus for the UK. He added that the Lon­don mar­ket suffered from a «drip, drip, drip» of selling that con­trib­uted to the valu­ation gap with the US, and investors would rather avoid this «leaky bucket» in favour of the «over­flow­ing» New York altern­at­ive.

He added that sev­eral com­pan­ies were pre­par­ing UK pub­lic offer­ings after fail­ing to float in the US through spe­cial pur­pose acquis­i­tions or ordin­ary list­ings over the past two years. «Those busi­nesses, hav­ing real­ised they’re not going to get what they expec­ted in the US, are now com­ing back to Lon­don». UK investors are con­sidered more risk-averse and com­fort­able with the tra­di­tional sec­tors that dom­in­ate Lon­don’s indices, such as min­ing and energy, sub­sequently ham­per­ing the UK’s abil­ity to retain newer com­pan­ies in sec­tors such as tech­no­logy and help them grow. They also tend to be overly depend­ent on dividends for returns, lead­ing to under-invest­ment.

«Domestic UK investors have not evolved with the times,» said one senior banker, adding that «once upon a time, Lon­don was the centre for min­ing com­pan­ies glob­ally, but it lost an oppor­tun­ity to evolve when the min­ing sec­tor came down, and tech came up». Com­pany boards are also increas­ingly frus­trated with the scru­tiny of exec­ut­ive pay and what they see as the «box tick­ing» exer­cise over cor­por­ate gov­ernance in Lon­don. Large man­age­ment pay­outs at CRH have been cri­ti­cised by high-pay cam­paign­ers while some investors voted against them. US exchanges have act­ively cour­ted UK com­pan­ies amid dis­sat­is­fac­tion with the domestic mar­ket.

Cas­sandra Seier, head of inter­na­tional cap­ital mar­kets at the New York Stock Exchange, said the exchange under­took a lot of out­reach, speak­ing to bankers and com­pan­ies and that «in par­tic­u­lar in Lon­don, a lot of focus is on bring­ing com­pan­ies to the US». Lon­don’s attract­ive­ness to com­pan­ies and investors is a cent­ral part of recent attempts by the gov­ern­ment to rein­vig­or­ate the City of Lon­don through the «Edin­burgh reforms» that aim to rip up EU rules to make it com­pet­it­ive against rival fin­an­cial centres. To boost Lon­don’s equity mar­kets, the gov­ern­ment will revamp com­pany pro­spect­uses, recon­sider short-selling rules and review invest­ment research. «If any­one was in any doubt that we are in the shit, they should be wak­ing up now at least,» said one gov­ern­ment adviser.

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  1. Peter M.5 March 2023 at 11:13

    The London stock exchange and most investors there need to upgrade or it will all come down in 10-15 years. It will lose its appeal for companies if all they invest in is mining and energy. The world is changing every day and if you can't keep up you will disappear.

    ReplyDelete
    Replies
    1. Adam5 March 2023 at 11:19

      This is just another wake up call for the LSE. It had others and didn't do much about them. Even if some companies left for the US and then came back that doesn't mean the LSE is great. It just means they couldn't handle the US stock exchange.

      Delete
    2. John5 March 2023 at 14:21

      LSE is in big trouble, it has been so for years but now it's starting to stink. They better smell the roses and start adding measures in place to attract companies and help them along the way so they stick around. Otherwise the LSE will lose its renown.

      Delete

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