L&G boss laments ‘drift’ away from London’s equity market

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The head of one of Britain’s largest insurers has decried the “perpetual drift” of companies away from London’s stock market, arguing that a low-growth economy and political infighting have eroded the UK’s appeal.

The decisions last week by CRH, the world’s largest building materials group, and UK chip designer Arm to shun London in favour of listings in New York have heightened fears over the health of the UK stock market.

“We should be worried about it. We’ve been in perpetual drift,” Sir Nigel Wilson, chief executive of Legal & General, told the Financial Times. “There’s a drift of the City to Europe, there is a drift of the City to the United States.”

The L&G chief described the UK as a “low-productivity, low-growth, low-wage economy fraught by political infighting and that has to change.” Calling for reform of planning and financial rules to reverse the trend, he added: “We need a massive step-up in investment in the UK.”

The string of departures from London has unnerved British policymakers and regulators, as other companies discuss similar moves, drawn by a larger pool of investors, higher valuations and hundreds of billions of dollars of government spending on infrastructure.

The trend underlines the UK’s difficulty in attracting and retaining companies, despite the government’s attempts to reinvigorate the City after Brexit.

While some officials have blamed Arm’s move from London on onerous listing rules imposed by the Financial Conduct Authority, the regulator’s chief said on Wednesday that the FCA could not deviate far from its rule book.

“We are one part of the conversation, but there are also wider issues,” said Nikhil Rathi. He added that the UK’s tax regime was a potential deterrent for firms, alongside sterling’s volatility and pension rules that he said took investors out of the UK equities market.

“It is always disappointing if companies of national importance choose to raise their primary capital elsewhere”, Rathi told MPs.

Wilson, who is stepping down after a decade running L&G, also highlighted the shift by UK pension funds from equities to bonds, over a period of decades, as a driver of the drift away from London.

“If I go back 20-odd years, [our defined benefit pension funds] would be over 50 per cent invested in equities. Now they’re like 6 per cent,” he said. Defined contribution pension schemes should be investing more in high-growth companies, he said.

In its latest attempt to boost the stock market, the government is beginning a review into the lack of research coverage for UK-listed companies, acknowledging that “concerns have been raised about the quality and quantity of investment research produced in the UK as compared to other jurisdictions — particularly for certain sectors like tech and life sciences”. 

This could undermine valuations and “therefore the attractiveness of the UK as a place to list and make it harder for companies to access private capital”, it said in a statement.

Wilson cited efforts by L&G to help 600 start-ups in its portfolio to expand. “We want to scale up a lot of those and we want those to be FTSE constituents in years ahead,” he said. “That is what has to happen in the UK.”

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