Unlock the Editor’s Digest for free with this weekly newsletter curated by Roula Khalaf, Editor of the FT. In a recent issue, city grandee Archie Norman criticized the lack of UK pension fund money invested in British companies and the decline of corporate share options as contributing factors to the long term malaise of London’s stock market. Norman, who chairs M&S and sits on the board of private equity firm Bridgepoint, highlighted the decrease in UK pensions investing in equities as a major issue, stating that it has significantly reduced the available capital for domestic stocks. He pointed out that large corporate pension funds are now more focused on low-risk investments, which has limited their ability to support British institutions.
Norman also emphasized the importance of corporate stock options in the past, noting that share options used to be a common way of compensating executives. However, the decline in this practice has had negative consequences for the growth of British companies. The London Stock Exchange has been experiencing a lack of corporate listings in recent years, with many companies choosing to list in New York instead. While there have been some signs of a revival in IPO activity, such as microcomputer maker Raspberry Pi planning to list on the LSE, more needs to be done to attract capital back to British markets.
The decrease in pension capital can be traced back to an accounting change in 2000 that prompted defined benefit schemes to shift from equities to bonds to match their liabilities. This shift has resulted in pensions and insurers drastically reducing their exposure to equities, which has impacted the available capital for domestic stocks. Norman suggested that the auto-enrolment of employees into company pensions was a missed opportunity to channel savings into British industry, as many employees are unaware of where their pensions are invested.
Norman shared his experience at Asda, where he previously served as chief executive and chair, where around 70,000 colleagues were given share options and became shareholders. He highlighted the importance of encouraging more employees in big British companies to own shares, but noted that tax changes and accounting treatments have made share options less appealing for companies. The challenge remains in finding ways to incentivize investment in British companies and empower employees to become shareholders to support the growth of the UK stock market.
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