A lack of liquidity due to a relatively low appetite for investment in the UK is the main factor behind the decline of the London Stock Exchange (LSE), according to a commercial growth expert.
Speaking on an episode of GlobalData’s Instant Insights podcast, Carrie Osman, founder and CEO of growth consultancy Cruxy, suggested there are a range of factors behind companies choosing to list elsewhere or delisting, including some structural, but that, in her view, liquidity is the main issue.
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“It doesn’t have the liquidity, it doesn’t have the buoyancy, and it doesn’t, quite frankly, attract the most innovative technologies to list in London because of the fact that there doesn’t seem to be the appetite from an investment pool to provide the liquidity that obviously some of these founders or private equity firms are looking for,” Osman said.
“Ultimately, you’re looking for people to back your concept or idea, and you’re looking for them to believe in that with their money to buy shares in your company and say, ‘Yes, I believe that you’re going to make me a lot of money. Let’s go long here.’ I was looking at some facts, and I thought it’s very interesting that, for example, in the UK, about 23% of adults have stocks and shares. When we compare that to the US, it’s 62%.”
Osman was speaking following the announcement that Qualcomm has acquired UK-based semiconductor company Alphawave Semi, resulting in another high-profile departure from the LSE. She pointed to that deal as just one example of the challenges facing the LSE but noted that it wasn’t just the UK exchange facing such issues.
“When you look at Europe as a whole, I think [there are] 183 European listings, and only about 15% of those are listed in their home turf,” she said. “So, I think it probably is kind of far and wide when you look at Europe as a whole.”
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By GlobalDataEncouraging investment
Osman believes the lesser culture for investing in the UK compared to the US – where individuals are exposed to investing through the 401(k) retirement savings plan – is limiting the potential of the LSE.
“How could you encourage people to kind of play an active role in the market?” she said. “Maybe teach them about the market, teach them about stocks, teach them about trading. And then, of course, maybe there are ways that we could use tax incentives to encourage either companies or, of course, employees to be able to feel like they can invest in the markets without feeling like it’s so much of a risk.”
“It always feels like it’s less of a risk to just stick your money in an ISA and fingers crossed the Bank of England doesn’t reduce the rate too much. That was how I was brought up. I think it would be amazing to think that there’s a way to encourage more slight risk taking but with a bit of a support layer there so that people feel they can invest in our country and invest in some of our great assets.”
Osman also pointed to the Private Intermittent Securities and Capital Exchange System (PISCES) as a means of encouraging investment. Per the UK’s Financial Conduct Authority, “PISCES is a new type of private stock market that will give investors more opportunities to buy stakes in growing companies.”
“If I own shares in a company, I can trade those shares without listing it publicly, so that there’ll be these kind of trading windows,” Osman explained. “So, I can trade those shares, and an asset manager can buy them all. But the thing that concerns me about that is that it’s only secondaries, so it’s only certain people they decide can do that, who are professional investors, whatever that means.
“And who decides the price? Is this just regulation? All the positive consequences, but it ends up with a lot of regulation on regulation, and it ends up with a lot of complexity? I’m worried that that could end up being a lot of positive intent, but maybe it doesn’t lead to that outcome of driving liquidity that they would hope.”
