Four Governments; more financial crises than the last 100 years put together and the introduction of the internet; all these are changes I’ve borne witness to over the last 30 years - and this list is by no means exhaustive. As I take a step back from executive life, I’m indulging in a moment of reflection on how the London market has evolved. What stands out is the role of regulation, its pros, its cons and what needs to change for the future.
From starting out with a £16 million IPO on AIM in 1996, to today standing as a £1.26 billion FTSE 250 on the main market, Primary Health Properties has grown, developed and adapted overtime to the changing environment, becoming one of the first REITs in 2007.
We are leaders in our sector and, given our scale and influence, are subject to high levels of scrutiny in terms of regulation and ESG with all components coming together to form a gateway to liquidity. This is certainly new, but is this a positive attribute of the London market?
A radical shift has taken place over the past 30 years, in both peoples’ opinions and attitudes when it comes to regulation.
London was nigh on parochial beyond bottom line profitability when PHP first listed, but now, thanks to the market’s focus on transparency, companies are forced to recognise and act out their role in safeguarding the people, planet and places in which we live. This is a great aspiration.
PHP’s net zero carbon commitments are fundamental, as is pushing to increase diversity and inclusivity. It’s not just me who believes in the benefits of a breadth of opinion, it leads to better decision-making.
Whilst you can extol the benefits of adoption, non-compliance with ESG now frankly makes you un-investable. Furthermore, where it gets interesting is when ESG regulations also function as a tailwind.
Our core business has enormous social impact. Investing in medical centres that not only treat sick people, alleviating the pressure on NHS emergency rooms, but also help people remain healthy in the first place. We have committed £2.8 billion worth of assets into modernising the NHS. Our new chief executive, Mark Davies, has highlighted this as a key attraction to the business and investors are drawn to these credentials together with our super secure rental income.
However, the compliance burden is substantial. A balance has to be struck between gold plating requirements and doing business in a cost effective and appropriate way. I puzzle to understand how PHP’s 196 page annual report is really helping investors more than our 23 page version 30 years ago?
The large amount of red tape, combined with an insistence on scale, means many companies are struggling to get a seat at the table and this is a shame.
To counter these factors, many companies are turning to consolidation; the REIT sector is a good example with the recent merger of LXi and Londonmetric to create a £4 billion giant. Acquiring your ‘No. 2’ can increase resilience and better attract fresh capital.
As London continues to evolve, there is a need for the rules to be fine-tuned, adapted and in turn reduced. A ‘one-size fits all’ approach doesn’t work, disregarding size, purpose, shareholder structure and so on. The cobweb of regulation is continually expanding and gaining complexity, stifling British companies’ ability to compete internationally. ‘Comply or explain’ is a great concept but very often voting agencies interpret this as a ‘comply or else’.
I ask myself where is the reduction in rules following the exit from the EU? The snowball that is London’s listing obligations is overwhelming, and does it even help inform investment decisions?
There are more pioneering markets where there’s less regulation and already we are seeing issuers jump ship. This frustrates me when London still flourishes in so many ways and when an average US listing can cost a minimum of $2.1 million on advisory fees vs. the AIM market? That is madness.
Looking ahead to the next 30 years, for the London market to succeed we need to be nimble and retain the ability to fast track success stories, much like PHP’s journey, without a great regulatory burden.
We need to have broader horizons too, a new regime with a five year, not five-minute, time horizon to allow for more critical examination and action on issues. This would safeguard London’s reputation as a place where you can be proud to do business, and not a constant struggle against red tape and regulation which is forcing companies to go private or take their listing elsewhere.
