In order to resolve the shortfall in UK pension funds investing in domestic firms, the chancellor must take “urgent” action, according to the Capital Markets Industry Taskforce.
A prominent cohort of City figures is urging the chancellor to expedite pension reform, provide the audit watchdog with a competitiveness objective, and encourage retail investors to support British companies “at a critical juncture… [for] the economy.”
A distinguished council, presided over by Julia Hoggett, the chief executive officer of the London Stock Exchange, urges Jeremy Hunt to progress his financial services initiative in the autumn statement to be released next week.
CMIT’s Concerns and Notable Members
In the extensive letter, CMIT cautioned that domestic investment was being withheld from British firms. They stated, “The United Kingdom has remarkable companies and remarkable potential, but we do not invest in ourselves.”
CMIT, an organisation founded in the previous year with the objective of fortifying the competitive standing of British capital markets in light of apprehensions regarding the growing allure for rapidly expanding firms to list internationally, is comprised of notable figures such as the chairman of GlaxoSmithKline and the CEOs of Phoenix Group and Schroders.
Discrepancies in Domestic Investment
The taskforce stated in its letter to Mr. Hunt that domestic investment in domestic capital markets by pension funds based in the United Kingdom is currently significantly lower than in other G7 countries.
The letter stated that while capital markets exist to finance the economy. Many countries have a large local investor base that wants to invest in their economies.
CMIT noted that Japan, Canada, and France were overweight relative to their local stock markets and equity allocations. In contrast, the United Kingdom is presently considerably underweight.
It further stated that the matter was not limited to public markets, informing the chancellor that a Canadian pension fund made a greater investment in a single UK private company in 2021 compared to the combined investment of the entire UK pensions industry in all UK private companies during the same year.
A CMIT member stated that the situation had become “urgent.” They asked the Treasury to immediately address Mr. Hunt’s Mansion House address pension changes earlier this year.
The matter has gained additional momentum due to the announcements of corporations. Including Flutter Entertainment, the FTSE-100 gambling group, which intends to relocate its principal listing to the United States.
In contrast, UK semiconductor designer and technology leader ARM Holdings listed its shares in New York instead of London.
The Impact on Domestic Capital
The CMIT letter warned Mr. Hunt that this trend would likely continue without a “proactive policy” to stop it.
Our enterprises lose finance as domestic capital depletes and UK tax dollars go to foreign firms. Ultimately, this undermines the effectiveness of our markets.
Additionally, it affects lesser and medium-sized businesses listed on our markets disproportionately.
CMIT proposed giving the Financial Reporting Council an explicit competitiveness objective to complement the City and banking watchdogs.
It added that this would guarantee that when developing future corporate governance and stewardship regimes, consideration would be given not only to good governance and stewardship but also to the appeal of the United Kingdom’s capital markets to potential and current domestic and international issuers, investors, and domestic and international investors.
In the autumn statement, the taskforce encouraged Mr. Hunt to finish Mansion House improvements. Create a ‘British ISA’ to encourage ordinary people to invest in UK companies and consolidate defined contribution pension programmes.
An impartial expert should report on UK pension fund investments in local enterprises.
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