Plans to boost the London’s flagging reputation as a capital-raising venue will be unveiled tonight by the Chancellor of the Exchequer in his annual set-piece address to the City.
Jeremey Hunt is expected to set out proposals designed to unlock billions from pension funds to invest in start-ups and other fast-growing companies to make the UK capital markets more attractive.
The industry will be asked to agree to provide 5% of their investments for early-stage businesses and private equity , in a move that could pour £50 billion into markets by the start of the next decade. But Hunt looks set to stop short of formal mandates over investment allocations.
London has faced growing competition from New York as a home for the listing of shares, because the US financial centre features a deeper pool of capital and so potentially higher company valuations. There has also been criticism of the regulatory burden firms face in coming to market in the UK.
One of the biggest UK business success stories – Arm Holdings – chose New York over London as the home for its shares when it will returns later this year to life as a listed firm in a blow for the Square Mile that became emblematic of the City’s faltering fortunes.
Simpler rules over the prospectuses companies must produce to raise cash are also expected from Hunt, which he could describe as a benefit of Brexit. They will follow similar moves already underway at the main market watchdog the Financial Conduct Authority.
Before Hunt’s speech, there has also been talk he could reveal more novel plans, for a new and more limited form of share trading. It may involve a limited form of stock in companies, which could be exchanged on a new venue on limited number of days without full listing requirements being triggered.
Any moves to ease access to capital are particularly popular with the fast-growing tech sector. Naureen Zahid, Director of Investor Relations at venture capital firm OpenOcean, said:
“If executed effectively, this can be a transformational moment for UK tech: positioning the UK as an attractive hub for innovation, investment capital, and global commerce.”
Such reforms are expected to be named after the venue of the speech – London’s Mansion House – the official residence of the Lord Mayor. They are also expected to cover merging smaller pension funds and Hunt may point to futures plans to create bigger funds, along the lines of Canada and Australia’s giant investors.
But there has been some scepticism in the City about the scope of Hunt’s plans. He has said they will not be of the scale of a second Big Bang, in a reference to the Thatcher government’s revolutionary changes. They swept away a traditional closed-shop approach and heralded a new era in modern international finance.
Mike McCudden, CEO of InfinitX, a fintech provider for private markets, welcomed the idea of increased investment as “a signal of confidence” in “London as a capital raising venue of choice”, with attention likely to focus on hopes to produce more companies valued at least a billion pounds, known as unicorns.
But he added: “If investment firms simply end up looking for the lowest risk way to meet any 5% target, rather than helping grow the market or the UK’s ability to nurture the next generation of unicorns, the risk is large slugs of capital will land in already profitable companies.”
Among the more modest changes expected were plans to end the requirement for firms to issue paper share certificates, in favour of a digital alternative.
