There are false dawns. And then there was 2021 for the London stock market.
Last year was heralded as a turning point for the City, with ministers and entrepreneurs lining up to gush about a “brilliant year”, with 37 tech listings raising more than £6bn, proving London’s competitiveness as a listing destination. “2022 now has the potential to be another record-breaking year,” said the government.
How, as they say, is that working out for you?
Barring something truly miraculous, initial public offerings are on course for their weakest year in two decades, with just £574mn raised so far in 2022. There have been just two tech deals, according to Dealogic, raising a whopping £18mn. Some of the shiny crop of fintech and ecommerce companies that promised to rejuvenate London’s old-economy vibe look decidedly tarnished, with high-profile names such as Deliveroo floundering on listing, pandemic beneficiaries such as Made.com struggling to adapt to a post-lockdown world and others, such as Revolution Beauty on Aim, just struggling full stop.
This isn’t really a surprise: the IPO market, and specifically the market for high-growth tech listings, has been terrible everywhere this year. UK listings may have slumped slightly more than in the US and Europe, but everyone is down more than 90 per cent. London’s 2021 debut crop (helped by currency weakness and a less overheated market) actually performed better than the equivalents in the US. The odd well-known name (well actually just Darktrace as far as I can see) is still trading above its offer price.
But the idea that last year was a meaningful show of strength from London was nonsense. A go-go global market enabled a raft of puffed-up pandemic stocks and private equity exits to list. The rule changes proposed by Lord Jonathan Hill’s listings review — around dual-class shares, free float requirements and an overhauled regime for special purpose acquisition companies — now look like tinkering rather than revolutionary. The problem remains the same as laid out in his report: London accounts for only 5 per cent of IPOs globally and the number of listed companies has fallen by 40 per cent since 2008.
This isn’t hangdog negativity. Talk to those in the Square Mile who take the long view about reviving London’s fortunes and they were always doubtful about focusing on one crop of deals. Or indeed on deals at all. Better to look at whether the UK market is providing capital — private and public — that companies need to start, grow and stay here. Don’t just obsess about quick wins from international listings. Start doing the hard work, over decades, to overhaul the domestic pipeline of companies and provide them with the risk capital they need.
It doesn’t take long before the conversation turns to culture, risk-taking and pensions. One particular bone of contention has been the dwindling investment of UK pension schemes in the domestic stock market: as recently as the mid-1990s, pension funds allocated just under half their assets to UK equities, a figure that has fallen to under 15 per cent. That is predominantly because of the wholesale “de-risking” of defined benefit pension schemes, of the type caught up in the liquidity squeeze that prompted central bank intervention last week, which have shifted out of stocks and into fixed income. Those funds, according to New Financial, allocate just 3 per cent of assets to UK equities. That alongside reductions by insurers and asset managers has sucked “natural demand” from the market, says the think-tank.
There are various groups and task forces at work on this issue, as well as the broader political imperative to get more pensions money invested in UK infrastructure, green energy and other “levelling-up” areas. It was already going to be a challenge. But the revelation of a poorly understood and inadequately policed pool of hidden leverage within the supposedly super-safe investment strategies of defined benefit pensions schemes is, to put it mildly, an infelicitous start to a conversation about why a little more risk may not be a bad thing.