Investors Who Neglected the UK: A Missed Opportunity for British Firms
By Alex Brummer for the Daily Mail | Updated: 21:51 BST, 1 September 2023
You may not be familiar with the names Abcam, Instem, and Dechra Pharmaceuticals, but these UK life sciences pioneers are worth noting. Unfortunately, each of these three listed companies – Abcam, an antibody supplier, Instem, a pharma software innovator, and Dechra, a veterinary drugs maker – have either been acquired or are in the process of being acquired by larger overseas competitors. These are the kinds of firms that, with a more vibrant and liquid London stock market, could have grown to become the next GlaxoSmithKline or Smith & Nephew.
Instead of these innovative British firms expanding organically or through bold acquisitions, they have become easy targets for wealthier foreign predators. Some of the blame falls on complacent boards of directors who wave the white flag and ride off into the sunset with hefty checks from automatically vested share options. However, the decline in the cult of UK equity goes beyond this. Britain’s investment community is too focused on avoiding risk and prioritizes corporate governance and short-term returns.
Chancellor Jeremy Hunt attempted to reverse this decline with the Edinburgh reforms at the end of last year. However, little of the £75 billion of pension fund cash he pledged to unlock for riskier innovative investments has been utilized. Proposed modernization of stock market listings, supported by the London Stock Exchange and the Financial Conduct Authority, has also faced controversy due to objections from governance enthusiasts. Back in the early 2000s, UK pension funds owned 39% of the UK stock market, but that figure has now shockingly fallen to just 4%.
Multiple factors have contributed to this market malfunction. Richard Buxton, a veteran City fund manager, blames overcautious regulations imposed by regulators and auditors that aim to make pension fund investments risk-free. The switch from equities to bonds, which gained traction in the 1990s, was driven by tougher protections for pensioners following Robert Maxwell’s raid on the Mirror Group pension fund. Gordon Brown’s move to abolish tax breaks on dividends paid into retirement nest eggs eliminated a key incentive for pension fund investments in equities.
London’s status as a share trading and listing powerhouse has been undermined by the shift from equity to bonds. This has had dire consequences for UK companies. If pension funds hadn’t diverted retirement money to hedge funds, Cadbury might still be a British company. Investment in public utilities would have taken priority over dividends for distant investors. Additionally, Arm Holdings, the UK’s most valued semiconductor creator, might never have relocated to New York.
Chancellor Hunt has initiated change, and it’s time for pension funds to respond to the challenge. The Barclays Equity Gilt Study, which dates back to 1899, shows that shares consistently outperform gilts over time. Aversion to risk has come at a high cost for the country.
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