Dave, we have good news.
Listen to this Bloomberg headline from the weekend. UK's unpopular market is suddenly the place to be.
Wow.
I mean, finally, finally, some good news out of Britain. You know, never mind the economy, never mind listings going elsewhere, never mind political chaos.
Turns out Britain's the place to be.
Yeah. So that's a positive spin.
I mean the negative spin would be well, we couldn't have fallen much further at the bottom, but we do have strategist from Barclay's, HSBC, Goldman Sachs and JP Morgan all saying positive things about the UK market.
I'm Francis Laqua and I'm David Merritt. Welcome to In the.
City, Bloomberg's podcast connecting you to the conversations at the heart of the City of London.
This week we speak with London Stock Exchange Chief Executive Julia Hoggart for a deep look at the UK equity market.
And we get her take on whether, after all the negative headlines, things are finally starting to look up. Julia Hoggett, thank you so much for joining. Yes, there has been so much negative headlines about the UK and what it means for the LC and also tracting investments. Were we finally turning a corner?
I actually think we've been turning a corner in real life for quite a long time. I think it always takes time for fact, narrative, and indeed perception to all catch up with one another. But I think there is a great deal of reason to be hugely optimistic.
So what are the selling points?
So I think if you.
Take a look at London, it already is a dominant capital raising center, and it has a lot of strengths which are innate to London by any measure, with the largest capital raising venue in Europe, and we have an incredibly international investor base who understand both domestic and international stories. We have a huge amount of capital that tracks the foot seat and tracks the assets which are within it, and therefore there is a structural supporting bid behind it.
It is one of the largest pools of dedicated AUM.
In Europe, if not the largest.
And one of the other facets is that London actually enables company of a certain scale to get the visibility and the attention that they need. The US is dominated by some very large companies, but every company has to start somewhere and grow and have the capacity to continue to grow and get focused as a consequence of being on that journey. The other thing I would say, which I think is really important. I say this a lot. I think I said it to you before, is that
a listing is for life, not just for Christmas. There's an awful lot of focus on that initial IPO, and I understand why there is, But actually one of London's strength is its ability to have phenomenal amounts of follow on capital raising and that ongoing structural support for companies once they come to market, which enables them not just to have an initial idea, but actually to be able to continue to finance their growth as they move through the gears of their development.
Something we tracked extensively on this podcast has been the kind of the relative strength of the London market versus European and global competitors as well. And there is this big moment when the Paris Exchange over to London and it felt like this kind of tipping point of London's dominance. And now we're approaching party again, maybe London's going to edge a bit further. Is that really important to you?
As the chief preceptive may I be blunt with you. I understand that I know that they were Bloomberg's numbers to be reported.
I don't actually recognize those numbers in terms of the differential between the size of London and the size of Paris, because some of those in its numbers disregard certain elements of what is listed in London. And so we are still the largest global center by any measure, and I.
Think it's about two trillion bigger.
So I think the narrative of Paris overtaking London is not something I actually factually recognized.
Okay, so great, So there's a different way of calculating it. Fine.
And yet obviously London's relative size has shrunk compared to its biggest European competitor in the last few years, hasn't it. I mean that trend has been real. Whether or not you factor in different I think you.
Yes, So you will see relatively.
You see the growth of certain stocks on certain markets that have gone up, the.
Luxury stocks in Europe basically, and.
Some of that delta shift.
But our numbers would say that London has got a form eight trillion pounds of market cap and Paris it's got two point nine trillion market cap, so the delta is still pretty significant. The other thing I'd say is that London is the only European venue that is in the top ten of global exchanges. So I use this phrase repeatedly, but by any measure, we are the largest market in Europe, and we want to be, and we want to continue to be, and we should measure ourselves
as being. We've actually raised more than the next two European venues combined this year so far, year to date, and so the measure actually isn't quite the story that's been told. My focus is on continuing to grow the UK market and addressing some of the things that I think we have needed to address for many years in terms of the amount of available risk capital is directed
to our market. So, my viewers, we're in a very strong position, but there's a great deal of upside from here with a regular, true reform agenda that's going on.
But Julie, how much of a blow was it for London not to get the r IPO.
It was big.
I've been very honest about that. I've used the phrase I think on your show that I want us to be young, scrappy and hungary. We should fight for every company that we believe we can provide great financing too, and particularly great homegrown UK companies that are world leaders are in what they do. And I'm not going to make any bones about wanting to fight for those listenings.
There are hosts of reasons why on went to the US.
I fervently believe that there's still the potential for to come to the UK as well. I also believe they got in the US what they would have got in Europe or got in the UK. So it is a blow, but it's that's no reason, not right, and it's no reason. I mean, certainly the last thing we should be doing is saying that it's not.
But is there a perception problem?
So if you have a big IPO that was also meant to kick starts a lot of you know, other vcs potentially looking the list and they move elsewhere and this was a UK company, does it actually, you know, nudge other companies to also list elsewhere And does it mean that you need to fight harder in trying to gain that business.
I think the battle for listings of.
Significant companies or any company is pretty aggressive nowadays, and so you have to fight for every listing, and that would be the case whether you're Nasdat, whether you're Nicely, whether you're London, whether you're Paris with your amster, so that that is the nature of the environment. I actually think the CEO is I talk to understand the specific circumstances, understand the specific dynamics, and also recognize that there are upsides to being in London.
They're upsides to being a New York but there are downsides to being New.
York as well, so they get they get all of that, and so it's much more nuanced than that, even though I understand the headline that says this therefore means that, but actually in individual conversations with companies, I don't think it's quite as deep.
It's quite like that.
You mentioned too about the regulatory changes coming down the pipe. And one of the things again we talked about a lot on this podcast is about the appetite for risk amongst UK, particularly in institutional investors, and everyone seems to acknowledge the need for reform here and on how to encourage the big pools of capital to take a bit
more risk. Where are we on that kind of journey and with the regulations, I mean There's been a lot written and said about it, but are we actually seeing any behavioral change by the big UK institutional investors.
So I have this phrase five fingers on the glove, which is all the component pieces that we as the capital markets industry transkforce think need to evolve in order to really build on the capital markets we have today into one that's even more powerful going forward. And the third finger of that five fingers is the availability for
US capital. So we have the second largest single pool of investable investable capital anywhere in the world in the UK, and our pension insurance money we have as a content coins of various regulatory changes over the years caused a great deal of that to be taken out of the market and put into fixed income or into other assets, and we have also created a narrative around de risking those portfolios rather than recognizing, particularly for DC pension funds,
that it's the largest single investment plot that people have in their lives and it needs to be invested in risk capital in order to have the capacity to grow to the scale that it needs to give people the life that they want in retirement. Now that is a conversation that is now much more prevalent both sides of the aisle from a political point of view, across the city,
across the regulatory environment as well. Regulated is saying a lot of the same things, and we are starting to really focus on what are those changes that are necessary, particularly in our pension market, to would agree in our insurance market, and I think increasingly actually in our retail savings market to maximize people's ability to direct risk capital, to be honest, into the UK and into the UK
listed market. With some mansion house reforms announced or already there was the mansion House Compact, and I would expect to see further reform in the autumn statement coming up. And when you talk to both sides of the aisle, there's consensus on the need to do this.
And this is happening around the world as well, as I understand. We've looked at the Canadian system, is that something that we want to kind of import some of some of those regulations.
Fundamentally, the more companies that you meet and great founders that you meet in the UK, you realize the amazing number of companies we have here and we actually create more unitcorns in the UK than anywhere outside the US. China and India. The challenge we have is that from A B and C rounds onwards, it's not UK capital that's financing those companies. So the punch of funds in Canada or Australia, or the VC funds on the West coast of the US or setting up in London to buy stakes.
In UK companies.
In twenty twenty one, one Canadian pension fund invested more in a single ticket in a UK private company than the entirety of the UK punch funds invested in UK private companies in the same year. Now, that illustrates the fact that it's not the absence of high quality assets. It's the fact that we as an investing market have not been focused on what's actually been under our noses.
And some of that has a regulatory focus on liquidity, some of it's been a regulatory focus on cost rather than return, and some of it has been sort of bits of history. But this is a pivot to say, actually, we need to have a mindset of investing across the private to public space in the UK to back those great companies that we are actually creating rapidly. But then we're financing with capital from over seats, But does.
It really matter where the capital's coming from. So is it a problem of scale that you have a British company or a British unicorn it gets money from outside investors, but it's no longer a UK company, or that they don't scale it quick enough like we've seen in Silicon Valley.
So I think the challenge is that ultimately it does matter where a company list, because ultimately where a company list creates its lockers, it creates its minded management, it creates its headquarters. If companies fundamentally have a huge amount of capital that they're taking from overseas, and there is an exible push from those vcs or whatever to say, well, I'm familiar with NASDAQA, I'm familiar with Singapore, go over there.
Then the indexation pull for those companies to relocate ultimately in order to get the full benefit of access to liquidity in that market does run the risk that minded management headquarters ip and indeed the high quality jobs actually
leave the country. And so we do a great job in this country of starting great companies getting them to a certain scale, but what we actually need to do is enable them men to scale from here and have access capital it's not saying we don't have international capital, is that we actually need to have a reasonable balance of our own capital invest in it as well.
The government has taken steps to make sure that pension funds at least put a certain part of their pension pot in growth companies.
Is it enough.
Do you have a figure of how much is needed to make a real difference.
I think the five percent of the mansion how to compact will make aim shift. But I do think we need to be focusing on looking at the structure of our pension insurance markets more broadly in our investing markets. And one of the challenges we've had in the UK, which is particular to the UK, is all the regulatory changes that closed our defined benefit schemes and then turn them into very very matched asset portfolios with a lot
of fixed income in them. Meant that as a total pot of pension assets, we have less that's directed towards equity and the risk capital than you would have if you had you didn't have as much in runoff basically, and so that's one of the challenges that we need to address.
But the other.
Challenge is that actually we need to think about consolidating we have a very very large number of very small DC schemes in the UK that are then regulated basically on.
The lowest price rather non best return.
And if you want to diversified portfolio of assets, you need to get to a certain scale, particularly if you want to invest in private companies, because an awful lot of the value.
Proposition is now being created in the private.
Company and fundamentally it is de democratizing the market and the access for pension savers if they can't get access to those assets, because it just means a smaller and smaller number of people are benefiting in a greater and greater amount of the upside. But you need some structural changes in the way your pension funds are organized in order to be able to access and take advantage of those pools.
One of the things you've said recently is around the issue of CEO pay in the UK, and obviously chief executives at fort two hundred companies earned significantly less across the board, mostly than in the US than their equivalents. How necessary is that do you think to kind of raise the standards of performance of companies in Britain.
I understand entirely the issues around pay equity, and I understand particularly the challenges in terms of cost some living that it exists right now. But the phrase that we often use and seem it is we want the UK to create globally consequential companies. Now, to be a globally consequential company, you need to be running from London or from the UK into markets in the US, in Asia,
et cetera. If in order to break into that particular market, you need to get the expert in that market to come and work for you, be that say in the US or Asia, and right now, because of the strictures that exist in the UK market, that person who would be game changing in terms of unlocking that value for the UK company unlocking that market would have to be paid more than the CEO and wouldn't be able to have any performance related pay on top of what they
started at and is probably still taking a pay cup from what they'd be paid to work for an Asian company or a US company or even sometimes a European company. Then we've got to have a conscious understanding of the potential impact that has on the ability to create globally consequential companies. And so it's really about having a rounded conversation about what we want to be and how where
we want to come out in the UK. And to me, it's about how we create these consequential companies that we have high quality, high paying jobs in the UK and we're driving in growth and investing in growth that actually produces a better quality of living for people, producers, taxes that pay for the NHS and everything else.
It is a virtuous.
Circle if you start investing in yourself, and that's the conversation that has sort of been missing in the paid conversation. As one of the other things that we did is we actually objectively we commission Willis Towns Watson. It's on the semate web see it to do a side by side analysis of the remuneration statements that the proxies were voting on for the UK, for Europe and the US. Now roughly speaking, in the US they say we will reward exceptional.
Performance and we'll take global benchmarking into account.
So if you're kind of looking at Maderna and Pfizer and GSK and as Zelling for or whatever, you're going to be looking at what those peers and equivalent companies are being paid to get the highest quality staff that you want to lead those companies. In Europe it says will reward acceptal performance, and in certain statements in the UK it says we will explicitly disregard global benchmarkt And so what we've actually done is we've hamstrung ourselves from creating a level playing.
Field with which compete with the rest of the world. And it doesn't mean that's.
Appropriate for every company, because if you're a purely domestic company, then obviously your price points are going to be entily domestic. But if you're trying to create a globally consequential company from the UK, which, to be honest, the history of US as a capital market and as as economy is of doing, then we need to make sure that we've understood the consequences if we have a different approach to the approach in Europe and the US will.
Labor change anything if they come into power.
How much focus do you think they'll have on the city of London.
Have they reached out to talk about certain propositions.
The one thing that I've observed over the last year and a half, particularly with the capital markets industry transforce, is a massive amount of consensus across both the City and on both sides of the Aisle about the need for this reform, and I think there is pretty clear
consensus parties that this needs to happen. Fundamentally, if you slim it down, the UK has gradually over the last twenty thirty years stopped investing in itself and the City has done a great job of driving the UK's place as a global financial center, but it has sometimes not focused as much on how it directs capital into the UK economy to drive growth and fundamentally, whether you're the Tory Party or the Labor Party, that objective matters enormustry.
I've never seen a level of consensus around this agenda.
Well, I look at your website, Judy, the big banner is about seizing the green growth opportunity. And when you see what the rhetoric coming up for the government at the moment now and the pushback on net serial, how optimistic are you as London as a center for green finance and how important will it be to the mix of the stocks that we have dominating the London Stock Exchange in the years to come.
So the UK actually has kind of world leading structures to support financing and the understanding of the greening of the economy, and I fervently believe that the just transition to net zero is the stewardship challenge of our generation, and there is a huge amount of opportunity there in terms of the transition of economic activity and the new
opportunities that will come from it. Notwithstanding what's happened over the course of the last kind of a few weeks, the commitment to that underlying regulatory structure is completely unchanged, and therefore I think London could continue to be a global leader in Greek finance.
When you look at the city of London and how it's changed double last fifteen to twenty years. I know you've spoken in the past about divers and inclusion, you know, being as important as climate change, Like what are we doing better than you thought we would? And what are we doing worse.
On climate change or on diversitydity both? So I actually think we've got some We've got a lot of momentum on the financing of the transition to net zero. So I mean look as an exchange as an example, we're one of the we're certainly the only exchange in Europe that has got the green and marked for both listed
equities and funds. We have a huge astaendible bond market that's growing and a very significant rate year on year, and we have the world's first volunteer carbon market financing market, all of which are up and running and operating out of London, and so from that point of view, that
infrastructure ecosystem is there. So if you told me that this is where the sustainable bond market would be in sort of twenty ten eleven twelve, when I was setting up one of the first green bond businesses in the streets in the city in London, I don't think i'd have believed you. In terms of how far and how fast it's become embedded into the total man of capital
is raised. And now that it's moving into an understanding of equities, into the fund market and into the vulune of carbon market, then I think there's a great deal to be optimistic about there. And I think that the UK has been a leader in focusing on, to be honest, the quite boring nuts and bolts that make markets function
in service of that objective. From a diversity and inclusion point of view, I think we are making a lot of progress, but I think the most important thing is to recognize and understand the situation and then make commitments to make positive change. So the UK is leading already actually from a global policy, I think we're probably only behind France in terms of gender representation on list of company boards. We still need to work on certain parts
of the financial market ecosystem. It's fair to say that VCP and asset management don't come out as well as banking, investment banking and the places like the Exchange in terms of the gender parity. And there is a huge amount we still need to do for social mobility and inclusion. But I think we are We are continuing year on year on year to make progress.
That although I don't have the number of fun of me, but the amount of female chief executives, and for two hundred companies, it's a pretty low number, isn't it.
Yeah, for forty one hunderd we do well when we get to ten and we need to and I suspect it's pretty similar in most places around the world. So the next the next challenge, once you've cracked the diversity of board level is to crack diversity at the executive level, and that is increasingly where the focus is, and fundamentally you need to build that bench of executives with the experience to be able to step up into the C
suite and into the CEO. Seed and I think it is making progress and we are kind of very conscious of that as a market across both the UK, I think, and Europe.
In the US, Julia, thank you so much for joining us today.
Thank you.
So thanks for listening to this week's in the City. We'll be back next week.
But in the meantime, if you like our show, please do head on over to wherever you listen to podcasts, a rate, review, and subscribe. It really does help people find the show.
Yeah, we really want you to rate and review. Please please do that. This episode was hosted by me.
Francine Leap and Me David Merritt.
It was produced by Summersadi.
With additional editing by Blake Maples
And special thanks to Julia Hubby