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Listing reform alone is not enough to revive London's public markets

City Voices (ES)
City Voices (ES)

A YEAR ago this week I went on the radio to invite UK pension funds to buy our members’ shares as soon as the market opened that morning.

The ink was still drying on the Mansion House Compact, a commitment initially made by nine of the UK’s largest defined contribution pension providers to allocate 5% of assets in their default funds to unlisted equities.

It was conceived as a win-win: funds would dip their toes into riskier, high-potential assets with the aim of delivering better returns for retirees; small companies would bag fresh capital to fund their ambition to grow without having to scour the globe for support.


However, there was a drawback: the commitment was for 2030, a far-off point by which a putative £50bn would have been unleashed – as long as all DC schemes chose to follow suit.

Hence my broadcast plea. Funds eager to keep their word did not have to wait seven years to rediscover UK stocks. They just had to call their broker.

Many of the main players are back where it all began today at Mansion House, the City of London’s plushest parlour, in what risks being seen as a private party for private capital.

For not only has progress in deploying funds under the Compact been slow going, any attention that might have been given to supporting promising companies trading on AIM and the Aquis Growth Market has been trampled in the dash towards venture capital-backed start-ups.

This morning’s City headlines are all about the Financial Conduct Authority’s long-awaited revamp of the listings rules, changes that growing companies have been crying out for. Ensuring the benefits of obtaining and maintaining a share quote are not outweighed by cost and complexity are vital, and the next step is getting funds flowing where they are most needed.

That means a British ISA, a retail investment strategy and pension changes, beginning with retirement funds which take advantage of hefty tax benefits disclosing just how much they back Britain. But the Compact must play its part too.

The unlisted equities that signatories pledged to back are not simply unquoted equities – those privately-held and without a share quote. The category includes companies that trade on AIM and Aquis but do not feature on the FCA’s Official List of shares which encapsulates the London Stock Exchange’s Main Market, including constituents of the FTSE 100 index. I am proud that many of them choose to be members of the Quoted Companies Alliance.

We are eager to make sure these companies get their share. Firstly, when they were convened by Sir Nicholas Lyons as Lord Mayor, pension providers said they would do this. Secondly, because our growth stocks need it. AIM companies have seen the average value of daily trading in their shares fall 15% in a year, according to a UHY Hacker Young study. AIM is also more than twice as reliant on UK domiciled investors than the Main Market so the well-documented withdrawal of UK pension money has hurt it disproportionately.

I know from my involvement in the Private Business Commission that many private companies and their backers ultimately see the public markets as their natural home. But, listing reforms or not, more funding needs to be directed to growing public companies too or else their future peers will think twice.

As I pointed out last week in a letter to the new Chancellor, Rachel Reeves, our public markets are vital infrastructure that can underpin an industrial strategy, a raw ingredient for economic success that we cannot cede overseas. Venture capital cash gushes through start-up hotspots such as Cambridge like the River Cam itself, but those can’t be the only flows we nurture.

And sclerotic pension funds have been missing out. The FTSE AIM 100 Index is up a creditable 6.5% in the year since their bosses put pen to paper. Shares in SIMEC Atlantis Energy, the creator of a sustainable energy park in South Wales, are up by two-thirds in that time; Fintel, a Huddersfield-based fintech supporting the retail financial services market, has seen a 62% gain. Middlesbrough engineer Time to ACT has got off to a good start on the access segment of the Aquis Growth Market too. Other growth stocks, operating in exciting industries and dispersed across the nations and regions, are of course available.

Let’s turn a good initiative into a great one by accelerating and targeting stocks like these.

After all, by 2030 Sir Keir Starmer’s brand-new government – which has already set up a National Wealth Fund and is laser-focused on increasing investment to power growth - will have gone to the country to secure a second mandate. Does capital become patient capital because investees must wait a long time for it to be deployed?

Treasury officials are tracking closely how well this voluntary scheme does. Beyond what providers have so far offered to do to support the UK, they could be compelled to do even more for homegrown businesses in the Chancellor’s upcoming review of the entire pensions system. Growing public companies know just how to put these funds to work.

James Ashton is Chief Executive of the Quoted Companies Alliance.