How to reboot Britain's capital markets | FT Film
Short Summary:
This FT Film explores the decline of Britain's capital markets and proposes solutions for its revitalization. Key issues discussed include a flawed pension system discouraging investment in riskier, growth-oriented sectors like tech, a lack of domestic investment in UK equities, and a regulatory environment perceived as less attractive than the US. The film highlights the exodus of tech startups listing on NASDAQ instead of the London Stock Exchange, resulting in lost returns for UK investors. Proposed solutions include the Edinburgh Reforms, aiming to improve regulations and encourage pension fund investment in UK equities. The film also emphasizes the need for a cultural shift towards embracing risk and rewarding high-growth companies, drawing parallels with the US model of fostering tech giants. Specific examples like Maillian (a successful UK tech company) and Balong (a fintech startup) illustrate both the potential and the challenges faced by UK businesses.
Detailed Summary:
The film is structured around the central theme of reviving the UK's capital markets, focusing on the reasons for its decline and potential solutions. It can be broken down into the following sections:
Section 1: The Problem – A Shrinking Stock Exchange: This section establishes the core issue: the London Stock Exchange is shrinking, with fewer companies listing and a significant outflow of investment, particularly in the tech sector. The FTSE 100's slow growth compared to US indices is highlighted, along with the dominance of "old economy" sectors and the migration of major companies (like Flutter and Shell) to US markets. The lack of IPO activity is identified as a major concern.
Section 2: Root Causes – Pension System and Risk Aversion: This section delves into the underlying causes. The UK's pension system is criticized for its risk-averse nature, pushing investments towards bonds rather than equities, particularly UK equities. This is linked to the legacy of the Robert Maxwell scandal and subsequent regulatory changes. The film argues that this lack of domestic investment hinders growth and creates an "incubator economy" where UK startups are often acquired by foreign companies. A cultural reluctance to reward high executive pay is also identified as a contributing factor.
Section 3: Proposed Solutions – The Edinburgh Reforms and Cultural Shift: This section outlines the government's proposed Edinburgh Reforms, a suite of regulatory changes aimed at making the UK market more attractive. However, the film emphasizes that regulatory changes alone are insufficient. A fundamental shift in culture is needed, encouraging risk-taking, supporting high-growth companies, and fostering a domestic investment environment similar to the US. The need for increased pension fund investment in UK equities is stressed, although the film acknowledges the resistance from pension fund managers who prioritize returns over national interests.
Section 4: Case Studies – Successes and Challenges: The film features interviews with CEOs of successful UK tech companies (Maillian and Balong). These case studies illustrate both the potential of the UK tech sector and the challenges faced in securing funding, with many companies ultimately relying on US investors. This highlights the "incubator economy" concern, where UK talent and innovation are not fully capitalized upon domestically.
Section 5: The Path Forward – Systemic Change: The final section emphasizes the need for broad systemic change, not just within the City of London but across the entire UK economy. This includes addressing the issues with the pension system, improving financial literacy, and fostering a culture that embraces risk and rewards long-term growth. The film concludes with a sense of urgency, highlighting that the issue is not just about the financial sector but about the overall prosperity of the UK. The comparison to the US model, where readily available cheap debt fueled growth, is used to illustrate the scale of the challenge. The role of the Capital Markets Industry Task Force is also mentioned, emphasizing the collaborative effort required to address the complex problem. A key quote summarizes the sentiment: "This is not about the City of London, it's not about bankers in suits, it's about the prosperity of the entire country."