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FTSE listing: Pension funds blamed for pushing companies to shun London for New York

pension funds Zvika Netter, Co-Founder and CEO of Innovid, rings the opening bell to celebrate his company’s listing at the New York Stock Exchange (NYSE) in New York City, U.S., December 1, 2021.  REUTERS/Brendan McDermid
Several companies are shunning London to list in the New York Stock Exchange (NYSE) as UK pension funds remain risk averse. Photo: Brendan McDermid/Reuters (Brendan McDermid / reuters)

A lack of investment from pension funds is driving companies to pursue listing abroad, the boss of the London Stock Exchange (LSEG.L) told MPs.

Cambridge-based chip designer Arm, owned by Japan’s Softbank (9984.T), announced earlier this month it was seeking to list in the US this year. This is despite an intense lobbying effort from British officials to see the company make its market debut in the UK.

London Stock Exchange boss Julia Hoggett said there needed to be more understanding that equities markets inherently involve risk.

“We need to recognise that stock markets are about risk capital,” she told the Treasury select committee.

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“We have to recognise that not every time, companies will succeed. Some will fail, and not every companies will have the returns expected.”

Read more: Arm chooses New York for key technology listing in 'kick in the teeth' for London

Building materials giant CRH (CRH), which is headquartered in Ireland, also said it would move its primary listing to the US, citing “increased commercial, operational and acquisition opportunities.”

Hogget pushed UK pension funds to invest in startups as a way to make IPOs in London more attractive.

“There are more teachers in Ontario financing startups in this country than teachers in Aberdeen, Cardiff or Dover,” she said in reference to the fact that UK pension funds are not investing in UK companies.

“A single Canadian pension fund invested more in one UK private company in 2021 than all of our pension funds did in private companies in the UK in the same year,” she added.

Read more: Trending tickers: Microsoft | Alphabet | First Republic | Meta | GSK

The Cambridge-based Arm designs the chips that power most of the world’s smartphones. It is expected to be worth as much as $70bn (£58bn) according to bankers pitching the company on the US float.

Victoria Scholar, head of investment at Interactive Investor, said the snub was a “kick in the teeth” for London.

Read more: UK watchdog blocks Microsoft’s $75bn acquisition of Activision Blizzard

Peter Harrison, head of the fund manager Schroders (SDR.L) and one of the City’s most senior executives warned at the time that the UK’s failure to back “risk takers” means London is unable to compete with New York.

Last year alone, there were 130 deals stateside in new Initial Public Offerings, which raised about $9bn, according to figures from EY. Around 70% of these IPOs were on US exchanges.

GSK (GSK.L) chair Jonathan Symonds told MPs that lack of funding from British investors for early-stage companies is a key reason why UK companies tend to list abroad.

“When a company comes to that critical decision in its life of ‘do we list and where do we list’ the vast majority of companies in UK life sciences have been almost entirely funded by US capital,” he said.

“Therefore the vast majority of its board is from outside the UK.

“So when it comes to the question of where do we list, the UK isn’t getting a fair opportunity.

“If the capital is all imported, I don’t think we can complain if the company is exported,” added said.

The raft of British companies choosing to list abroad is a major blow to Rishi Sunak’s ambitions to make the City the first choice for tech company flotations.

Watch: Arm snubs London by choosing US listing

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