Schroders chief executive Peter Harrison has thrown his weight behind chancellor Rishi Sunak’s attempts to relax domestic stock market rules to make the UK a more competitive place for companies to float.
Alongside last month’s budget, the Treasury published a review led by Lord Hill that made a number of recommendations to boost the City of London’s profile on the global scale as a listing hub.
Among them was the modernising of listing rules to allow dual class share structures in the London Stock Exchange’s premium listing segment which would give directors continued control over their companies despite being publicly listed.
Hill also suggested loosening regulation around special -purpose acquisition companies (Spacs), which are shell companies listed on a stock exchange with the purpose of acquiring private companies, and reducing free-float requirements to allow the minimum proportion of a company’s shares in public hands to be 15% rather than 25%.
‘Without reform, London faces slow decline’
In an article published in the Times, Harrison (pictured) said London’s stock exchanges had lost ground to their international competitors since 2007 which marked London’s most successful year for floats.
“I have become increasingly concerned that without reform, London faces slow decline at a time when Amsterdam and other markets are in the ascendancy,” he wrote.
Harrison said the UK Spac market had been lifeless in comparison to the burgeoning US market where last year 248 Spacs floated with that number exceeded already this year.
“The Spac market on this side of the pond has been stagnant,” he wrote. “Nearly £64bn was raised through Spacs in the US last year, according to data firm Dealogic. In the UK, the figure was just £30m.”
Loosening Spac regulations allows fund managers to thrive
Harrison said loosening Spac regulations should be where “good fund management companies should come into their own”.
“Splitting the wheat from the chaff is our raison d’etre. And London, in particular, is a world leader in pricing risk, when given the chance to do so.”
He also backed the “much-needed” reform to allow companies with dual-class share structures the opportunity of FTSE 100 status.
Harrison argued under current rules, companies with dual voting rights have access to only a ‘standard’ listing as opposed to ‘premium’, missing out on entry to the FTSE and the benefits it brings. Dual-class share structures, permitted in New York and Frankfurt, help owners of newly listed companies to ward off hostile takeovers.
Failure to be go-to market for tech entrepreneurs has hit stock market performance
The Schroders’ boss also threw his weight behind Hill’s suggestion to reduce free-float requirements.
“The UK’s coalition government mooted this idea nearly a decade ago. The subsequent performance gap tells the story that follows. New York’s S&P 500 returned almost 268% in the 10 years to the end of 2020. The FTSE 100 managed just 43%.
“While this may be due to a range of reasons, a failure to be the go-to market for technology entrepreneurs has been one of the more significant ones.”
Earlier this month, takeaway delivery firm Deliveroo’s floatation on the London Stock Exchange was seen as a flop after its shares closed the first day of trading down 14%. The firm’s debut dashed hopes it would usher in a new era of major tech companies flocking to the City.
See also: Investors deliver post-mortem on Deliveroo’s IPO flop
Pension savers’ money will remain tied up in old economy stocks
Elsewhere, Harrison said “perhaps the greatest implication” of entrepreneurs seeking to list in other markets is for pension savers whose retirement pots have become ever more exposed to domestic old economy stocks that dominate the FTSE 100, such as banks and carbon-reliant sectors such as oil and mining.
“This alone should be enough reason for change,” he wrote.
