Unlock Editor’s Digest Lock for Free
At a Downing Street Meeting, a major fund manager warned that sentiment towards the London stock market is in “Lockbottom,” urging the minister to consider requiring the UK pension fund to allocate at least 5% of its investment in domestic stocks.
This week, a group of UK equity specialists led by Nick Lawson, CEO of investment group Oceanwall, met with Varun Chandra, a government special advisor on business, to discuss ways to stimulate the public stock market.
The fund manager outlined concerns about the UK stock market status and agreed that investors’ sentiment is at the “lock bottom.”
The meeting highlighted several challenges, including the fact that registrations from the UK market outweigh the new early public offering, the harsh valuation gap between UK and US companies, and the fact that UK companies are being snapped cheaply by private equity and foreign buyers.
Participants also said the company is facing a “fate loop” caused by the domestic pension fund, a net seller of UK stocks for the ninth year in a row.
The meeting took place the day after US food delivery company Doordash attacked a £2.9 billion deal with British rival Deliveroo, dubbed by “the worst IPO in London’s history,” four years after US food delivery company Doordash floated in London at a valuation of £7.6 billion.
As the assessment is a major factor in determining where companies choose their list, the long-term UK misperforming has led them to look for the US, particularly overseas. The cost and governance burden of lists are also cited as offensive.
Participants at the Downing Street Meeting insisted on increasing the domestic capital allocation of UK pension funds, including obligations.
There was a wide range of agreements that the targets of 5%, 8%, and 10% were discussed as reasonable thresholds to consider, and that the defined contribution scheme should take precedence over the defined benefit scheme.
“When the UK pension fund reaches 10%, it will be a heroin shot for the UK market,” Lawson said, adding that he is in favor of a “moderately guided obligation.”
Some participants in the conference suggested that such a shift could tell a much broader “noble circle” that would equally benefit businesses, markets and savers by regaining confidence and supporting assessments.
However, the concept of obligation is highly controversial.
Pension fund executives say they can “open a can of worms” by forcing investment targets, reducing fiduciary obligations to ensure the best possible return for investors.
The pension fund is expected to sign this month a voluntary compact, the 2023 Mansion Compact update, which was signed under the last conservative government.
Recommended
However, FT understands that there is no specification to invest in listed stocks.
Former Prime Minister Jeremy Hunt considered the obligations but did not introduce the policy before last year’s election. Prime Minister Rachel Reeves has not ruled out the idea, but the minister is hesitant.
Shadow Chancellor’s Mel Stride said the idea was despairing, telling this week’s Financial Times:
Fund managers at the conference included veteran stock pickers such as David Cumming, UK equity director for Newton Investment Management, Andy Brough of Schroders, and Michael Stiasny, UK equity director for M&G Investments.
Those close to the idea of the state employment savings trust, the UK’s largest defined contribution pension scheme supported by the government, said its priority was to invest in the best ways for its members, but added that the fund was publicly publicly available in its commitment to investing in the UK.
Nest, which manages more than £50 billion, said that around 1.75% of its total assets were invested in UK stocks at the end of March. Liz Fernando, Nest’s chief investment officer, told FT in an interview that all Nest’s partner managers were “actively encouraging” them to look for UK assets.
A government spokesman said the minister was trying to ensure that businesses have access to the finances they need to grow. The spokesman said, “It’s right to be involved with stakeholders as part of this.”
