FCA listing proposals risk “undoing stewardship progress” say UK pension schemes

The group wants to ensure that the UK’s historically high corporate governance standards and robust investors’ protections are maintained to support healthy capital markets in the future.

The group of pension schemes, responding to the FCA’s consultation CP23/10 Primary Markets Effectiveness Review: Feedback to DP22/2 and proposed equity listing rule reforms, welcomed the public debate about how to create vibrant UK capital markets which attract high-quality, innovative firms and high-quality, thoughtful investors, but expressed their concerns that the current proposals would dilute investor protections and exacerbate current issues.

In the letter, the schemes note that the FCA’s proposals would;

• Roll back fundamental investor protections, such as the right to a shareholder vote on both significant and related party transactions, as well as the equal voting rights that serve as the foundation of a fair and democratic capitalist system.
• In turn, this would dilute investors’ ability to act as robust stewards of members’ assets
• And ultimately diminish the UK’s reputation as the world’s leading ‘quality’ market and its role as a beacon for high corporate governance standards.

The group highlights individual schemes’ discussions with companies, IPO advisers, and investment managers, which found that innovative companies are primarily looking for fair valuations, a stable policy, economic and political environment, and a deep, liquid pool of thoughtful and long-term domestic and international capital. The group concludes that policymakers should pause their current proposals and seek to implement other, evidence-led measures to address these fundamental issues.

Michael Marshall, Head of investment risk and sustainable ownership at Railpen said: “We’re supportive of a public debate on the UK capital markets and are keen to ensure our market thrives whilst maintaining the robust quality the UK is known for. The FCA’s current proposals risk watering down that quality and reducing the pool of institutional and retail investors willing to invest in UK-listed companies.

“We welcome the opportunity to share ideas and discuss evidence-based approaches which could boost the UK’s appeal without diluting investor protections.”

Caroline Escott, Senior Investment Manager, Railpen, said: “As UK pension schemes, we naturally want to see the UK continue to thrive as a global financial centre.

“Well run, high performing pre-IPO companies and advisers, as well as available academic evidence, tell us fair valuation issues are a key challenge. Such valuations are driven by a large volume of liquid, high quality institutional and retail investor capital – volumes which come in turn from investor confidence in the protections they are given as well as policy, political and economic stability. Proponents of a more relaxed UK approach to shareholder rights underestimate the extent to which investor-friendly corporate governance standards have shaped the UK’s attractiveness on the world stage. We look forward to a broad discussion which considers voices from across the entire capital markets ecosystem.”

Letter signatories

• Railpen
• Brightwell
• Brunel Pensions Partnership
• The Church of England Pensions Board
• HSBC Bank (UK) Pension Scheme
• Merseyside Pension Fund
• NEST
• People’s Partnership
• TPT Retirement Solutions
• Universities Superannuation Scheme (USS)

Our open letter

UK asset owner letter | FCA Consultation Paper 23/10 – Primary Markets Effectiveness Review: Feedback to DP22/2 and proposed equity listing rule reforms

As UK pension schemes stewarding ca. £300bn assets under management on behalf of over 22 million members, we recognise that access to home-grown, high-performing companies – like many of those we already invest in – is positive for our members. We welcome the current conversation on creating vibrant UK capital markets, including how we attract not only high-quality, innovative firms but also high-quality, thoughtful investors.

We do not think the FCA’s proposed reforms to the UK listings regime will lead to the healthy capital markets we all want. We believe that they would in fact exacerbate the current issues by making UK-listed companies less attractive to the kinds of well-informed, long-term investors that our portfolio companies – including several that are looking to list in the next few years – tell us and our managers they are looking for.

The current proposals would roll back fundamental investor protections, such as the right to a shareholder vote on both significant and related party transactions, as well as the equal voting rights that serve as  the foundation of a fair and democratic capitalist system. Diluting these important shareholder rights mean that investors would find it more challenging to act as effective stewards of their assets. It would also diminish the UK’s reputation and attractiveness as the world’s ‘quality’ market, and its role as a beacon for high corporate governance standards and robust investor protections.

Many of us have previously welcomed FCA and other UK policy efforts to support investors in undertaking robust stewardship in members’ best interests. We agreed with policymakers that thoughtful stewardship on material factors is a fundamental ingredient in supporting companies that are well-placed to perform over the long term. Yet these latest policy discussions risk undoing much of the progress achieved, fundamentally reducing shareholder protections in a way that would ultimately leave scheme members exposed to more significant risks and higher costs.

The discussions many of us have had with portfolio companies, IPO advisers and our managers indicate that innovative companies are primarily looking for fair valuations, a stable policy, economic and political environment, and a deep, liquid pool of thoughtful and long-term domestic and international capital. We believe that policymakers should instead seek to implement measures in these fundamental areas that will attract both the companies and the investors that are important for healthy capital markets.

We are responsible for the retirement outcomes of millions of British citizens who work and live in the UK. We naturally want to see the UK continue to thrive as a global financial centre. However, we do not think that the changes proposed will solve the fundamental issues affecting our equity markets. Rather, we think that they will amplify the current challenges as well as leading to worse outcomes for our members. We also do not believe that policymakers have provided the necessary evidence to support yet further changes to the UK listings regime (taking place only 18 months after the previous changes were implemented).

We look forward to a broad and evidence-based policy discussion that includes, and listens to, voices from across the entire capital markets ecosystem. This discussion should include serious consideration of the asset owner perspective, given our role at the top of the investment chain and close alignment of interests with those of our members.

Yours sincerely,

Railpen

Brightwell

Brunel Pensions Partnership

The Church of England Pensions Board

HSBC Bank (UK) Pension Scheme

Merseyside Pension Fund

NEST

People’s Partnership

TPT Retirement Solutions

Universities Superannuation Scheme (USS)