When It Comes to Listings, London Is Losing Its Magic

investor confidence in London IPOs. I'm Francine Law in London Studio and this is in the City, Bloomberg's podcast connecting you to the stories at the heart of the City of London. This week we explore a question facing the Square mile. Can it be saved? Well? Mark Austin thinks so.

He's the latest person charged with sprucing up the UK's listing rules and helping this maintain its position as one of the world's leading financial centers, and he shares his plans with us a little bit later in the show. But first, Bloomberg editor kat Van Hoof explains why a big chunk of the IPL market share disappeared from London post Brexit, and my government efforts to attract more startups have not paid off yet. Cat, thank you so much for joining us. What a great, great pleasure to have

you here in the studio. So what exactly is happening in terms of real listings in London? Is it better or worse? So essentially, when you look at what's going on in the UK, especially since Brexit, you can't talk about I p o s without using the B word. So since the vote in twenty sixteen, we've definitely seen a slowdown in the number of I p o s

that have come to market. I think there was a bit of hope late twenty twenty when they got the Brexit deal that you know, there would be some new stuff coming through, and it did, but that's sort of your Fouria very quickly broke apart when a few of

these listings didn't really do very well. So we had some solids like Dr Martin's listing early on in the year here and then we had deliver rou you know, lots of fanfile, lots of sort of chat beforehand about governance issues and about you know, sort of the gig economy, workers and the rights of these workers, etcetera. But still

people are very excited. All eyes were on this listing and then it's just absolutely tanked from minute one and never really recovered about as well received as a cult. Takeaway delivery shares made their market debut Wednesday, and probably Plugs Delivery is actually halted now due to volatility, as it fell by twenty it felt by more than that is going on shares of the liver Roo. It's been kind of a strange offering here and certainly doesn't bode well I would think for you know, for the LC

going forward. Think it's down from the I p O price, So that really put a dent in in the enthusiasm for London ipo. Is it London I p O S or is it I pos in general? Is there a problem with the attractiveness of the UK because of the B word? When you look over the six years since the vote, the share of IPOs in Europe that have happened in London has diminished. So it used to be about fort IPOs in Europe were done in London. Since Brexit,

London has hosted about thirty. So it's definitely sort of a bit of a step back, and I also think it's sort of masking a greater problem where everybody else is also dealing with pandemic issues. Still, everybody's dealing with a big rotation in stock markets away from growth companies. I pos tend to come from growth companies. But we've still seen some big listings from other countries. We've seen some in Italy, You've seen some in the Nordics. Germany

is preparing this massive listing for Porsche. So there is still activity. It's just we don't really have anything in London that's that's feasibly coming anytime soon really, So why is that? Because there were fluffs before you mentioned Deliverue, So I think it's a it's a big confluence of things. So, you know, obviously we have economic slowdown is worse than the UK than in many other European countries. You know,

the forecasts are worse. Definitely, also Brexit related, you've got a little bit of overhang from those bad listings from one sort of left a sour taste. It's not really

going to make people particularly happy to invest. And then on top of all of that, we just don't have that critical mass of of these sort of big tech companies you know, Boris Johnson's government has been really driving this charm offensive essentially to get startups and innovative tech companies and bring them into London, and you know, there's

all these sort of big lobby efforts going on. But you know, no matter how much you lobby and ask companies and give them taxing centers and things like that, what really attracts tech companies is a big peer group because obviously, in an I p O you have to you know, you have to be valued. The market has to put a value onto you. And if there's no other companies to compare yourself to that are listed in

the market you want to list, that's a problem. And if you don't have that peer group, you're also not going to have analysts that are very specifically covering a particular area, and you're not going to have investors that are very comfortable and testing in this particular area. And that's very, very important for these tech companies, and we've seen that with some of these tech listings in one like wise like Delivery, that just haven't done very well.

So get Tom McKenzie and I spoke to Julia Hoggett, to the chief executive officer of the l a C. And she alluded that companies might be biding their time to list at the best time. I think that's a distinction between the preparation activity that companies are doing to get ready to come to market and the choice they make about when they do so. The questions to when it is partly function of their advice and what they're

told to do in terms of the optimal valuation. And obviously we're seeing a complete shift in the interest rate environment. We've seen the Russian Ukraine circumstances. There is a global reset going on which I don't think was anticipated when people are looking at the year in December January, and that is fracturing into people's timing decisions. So she's pretty optimistic, for example, about the UK's follow on issues despite the

dipping I p o s. Are the fears overblown? There is definitely a little bit of a sense of London bashing at the moment to a certain degree, and there is always that risk of potentially over egging it when it comes to all of the sort of negative things that are going on. We mustn't forget London is still very much the financial center in Europe. It is still you know, one bad year, so to say, or worse year than others, isn't necessarily going to mean London is over.

You know, it's not forever, wherever and ever. It's not. It's not as simple as that, for sure. But yes, there are companies abiding their time. But at the end of the day, what that means right now for the market is that some of these trends that are preventing companies from coming to market are getting worse in some ways. You know, people talk about the foot see one hundred as a dinosaur in next you know, the UK is

a dinosaur stock market. It's all miners and oil and gas, and while they've done well this year, it's not generally stocks that are future proof. Also, to say that can regulation actually gives the lyse a new future. So they've

been trying, that's for sure. And I do think, you know, down the line, some of the changes that are being proposed, like allowing founders greater control over their company after it lists, things like you know, smaller free floats, you know, just making it slightly easier for these high growth, earlier stage companies to come to market. That probably will start paying off in a few years time. But that doesn't really

help us now. And on top of all of that, changing the rules a little bit and tweaking that and and sort of bringing London more in line with a market like New York. That's essentially sort of the gist of it. While a step forward in many ways for companies looking to list, it's not going to magically create this sort of critical massive investors. So yes, it's good in some ways, but it's not necessarily going to be

a silver bullet in anyway. So getting five years from now, well you look back at this moment and say, this is where or when we realize that this was going to be a more regional economy, maybe with more regional indicy some and I p o s. I don't even know what I'm going to have for dinner. I don't know what's going to happen in five years time, but I always always past. I think we are at a an important moment in time where there is a danger

of that things are being done. Whether or not all of them are good or are going to end up in the way that they have been intended is much more difficult to predict. But there is definitely a danger, more so than probably at any other time in sort of modern history for London, where you kind of have to look at it and go, okay, we can see some of these dynamics, these trends developing and the time

to do something is now. You also have to keep in mind this is from the regulators perspective and companies, but investors are less enthusiastic about some of these changes. You know, for them, a London premium listing for decades has been the governance gold standard, the biggest investor protections in the world, and that's being eroded in a way. You know, some of these rules are taking away invested protections and it does expose people a little bit more.

There are reasons why these invested protections and these government standards have been so high, and if you start eating away at these requirements, there will also be some unintended consequence. Cat thank you so much. So, now that we have a sense of how bad things have gotten, let's turn to what might be done to ensure that the city maintains its position as one of the world's leading financial centers.

Joining us as Mark Austin, a partner at law from fresh Field who was also commissioned to lead a government review into London's capital markets. Thanks so much for joining us from What was the most surprising thing you found? I mean, I think the most the most surprising good thing I found was that there is a real appetite in the market for reform. I think people get it

in the UK now. I've been a leading financial center for a long time, but that is always a process of as osmosis, is always a process of developing as the world develops around you. And all credit frankly to the Treasury and the government and to the s c A for leaning into this process and being very visionary and moving with speed. But we need now, particularly given we're not in the EU anymore, to think about how we keep ourselves relevant. We've done it very successfully for

particularly last couple of decades. We now need to think about how we do it in the next couple of decades in a more competitive global environment. Let's be clear enlisting terms capital markets terms, but also where one where we are outside the EU, because that does make a difference.

What's the danger if there aren't these reforms going forward? Well, the danger is I think that in ten, fifteen and twenty years time we'll wake up and realize that we've slept walk into becoming a relatively regional, parochial stockage change and financial center, which we've got every chance to avoid that happening. But we need to have very bold and brave conversations and honest conversations about what we need to

do to try to make sure that doesn't happen. There's every chance it won't happen, but we're in a foot race with other jurisdictions around the world, not just New York, but our continental European peers as well as well as obviously Asians stock markets, and we need to be very aware of that and be very visionary and as I say, honest in what we need to do to reform ourselves to keep ourselves relevant. Put it simplistically, do investors or do do companies at list just want high valuations and

easy regulation? They do want that, I mean clearly any listings are often used as exits or partial exits, so evaluation is clearly important, and regulatory friction is clearly relevant to people want high standards at the same time, So there is a balance to be struck between having a regulatory system that is pragmatic and flexible and responsive to the needs of issuers and investors, and yet at the same time not unjusly so, So I mean part of

the exercise we're going through in London the moment is actually having an honest conversation about what do we really need to be competitive for the next twenty years and to ensure appropriate consumer protection as well, and so what do we need. So we've we've already reformed things like free float, We've talked about your class shares, We've made some amendments around spacts. The SCA is continuing that process now and potentially collapsing sim preferring our list sting segments

down into one single listing segment. That's an ongoing conversation. The secondary capital raising process, which is what I've just been focusing on for the last few months, that needs

to be made quicker and cheaper and more efficient. And I'm pleased to say that my review seems to have landed as I intended it to, as received wisdom, by which I mean people agree, which is what I was trying to do, which is not fair, but then it has to be executed on Yeah, it does, but a bit, But I mean I I spent an awful lot of time talking to everybody across the market to make sure that it landed like that, and I'm glad that people engage with it in the right way because I was

worried at the staff. I'll be honest that there might be a bit of computer says no, or this is all too hard, But actually there's a market. The conversation has been successfully reframed, I think, to one where just because we've done things in a certain way for the last twenty years doesn't mean we should necessarily do them in the next twenty years. And that doesn't mean, by the way, that we should engage in a regulatory race to the bottom and give away the reputation we have

for high corporate governance and regulatory standards. Absolutely not. But it does mean that we should be flexible and pragmatic about how we do that, particularly when we set ourselves against other listening venues. What are the other strongest listing venues out there? New York is obviously the pre eminent one, always has been. It's a much bigger market than we are, much more liquid, has more companies listed over there, bigger

in terms of size. We know that, But the I would say our main competition these days now we're outside that he is actually the continental European venues Amsterdam in particular, also Paris and Frankfurt, and you see those jurisdictions. They realized that too. Only a couple of weeks ago we had Germany coming out with some revised proposals around the future of Funding Act, and that's around making i PA

is easier, making couple of markets more efficient. The EU has come out several times with revisions on IPA rules, and France is very active as well, so as the Netherlands. We have lots of benefits in this jurisdiction times, own language, rule of law, stable regulatory system. It's a nice place to live. But you know, we shouldn't delude ourselves that places that Amsterdam have all of those things too, and

they are hungry, they are competitive. Do people want to listen in London because because of the steache because London was London? Yeah they do, they do, and historically they have. But sometimes the question comes up, well, but you know the other the regulatory friction or the amount of flak I might get, or your remuneration policies or investor attitudes. Actually it's just an easier life for me to list in Amsterdam, for example, because I get more or less

the same outcome. I think in a globalized world and a globalized investor world that we have these days, increasingly investors are pretty agnostic about the exchange that they will go on. London has an allure, has a historical aluer, but I think we shouldn't be under any illusions about the power that might have going forward if we're not careful. But if you're telling me that people listen in Amsterdam

because they have an easier life, they're small. Once they become big, can they afford to have regulation which has maybe seen as more lax in London. Yes, I mean it's not it's necessarily lax. They take things on a case by case basis and they are pragmatic about it and they are flexible. I don't think anyone would say that the corporate governance standards that they have an Amsterdam or any materially deliterious compared to ours in London, or

that they are, in regulatory terms, anymore relaxed. They are more relaxed and they can afford to be You're right, because of their size. So they will have to look at that as they get bigger. But the problem is that we go too far the other way. At the moment, we have too much architecture around it, which, when compared with a jurisdiction that has it is taken much more pragmatic approach of things often can hold us back and

can shoot us in the foot. And it didn't matter, It didn't matter when we were the default listing venue. But we're not necessarily that anymore. Mark, I mean, is there a psychological element too? When you're listening, you also want to go to the coolest place? So actually, is there an I p O or something in the pipeline that would turn around the psychology of other companies to

come here. I'm not sure there's one particular company. I think it's more about what is the perception of London amongst the founder community and the corporate community more generally, and it needs to become a default that when you are a company that is founded here or even an international issue are London is a viable place for you to list and get the valuation you want, the investors

you want. But you're talking about the recent blow basically from soft Bank, which is now rethinking whether to bring back the UK to designer ARMED to the London mark. It's with a partial listing that should UK policymakers now do everything they can to convince them that this is

the right place. And what can they do concretely, What can they do concretely, I think just illustrate, demonstrate to ARM and its owners that they will not be at a disadvantage by virtue, either in terms of valuation or liquidity, or regulatory friction or the investor attitudes that they will engage they will encounter in London visa via any other jurisdictions.

I think that's the key thing. I mean, there are wider points round as well, because as I said in my in my letter, and I've said a number of times, regulatory reform is only one thing, and and all credit to the Treasury and the f c A moving things forward with speed on the back of hill and I'm confident by the middle of next year sa Q three next year, we will have a regular, reformed regulatory regime in London that is modernized, fit for purpose and that

bears comparison with any other GIP listing jurisdiction in the world, which is fun tastic. The other things that we need to start thinking about, and the discussion has already started, are things like remuneration. Our remuneration policies in this country do not necessarily help us, and there is an obsessive focus on remuneration and investor rattitudes in London are perhaps

more value focused rather than growth focused. I think there's a conversation to have there around investor rattitudes in London. I think there's a conversation to have around proxy advisors and the and the power they have and the influence they have and how they interact with companies and investors.

I think there's a conversation to have about tax incentives and how you actually create a continuum across the private UK capital markets and the public UK capital markets that create tax incentives for companies to found themselves here, scale themselves here and then stay here. What kind of time frame are we thinking about? So if this is left too long, if this is left I don't have twelve months even eighteen months again, does it fizzle out? Do you have to to kind of, you know, go quite

aggressively for it now? I think you do. I think you do, and you know there's no you should strike. Why they are top. There is general consensus in the market across all stakeholders that this needs to happen, and it is happening. I don't think we need to say, you know, if we haven't done it within eighteen months, whi's too late. I think probably if you talk about in three or four years, it might be too late. But we're not talking about that sort of time frame.

I think people are keen to do this as quickly as possible. I'm very hardened by the fact that we are taking fairly swift action on all this. But it's also about just changing the narrative amongst global investors in global companies that London is open for business, the UK capital markets are a place that they should come and list. And the point we also are making through we're making through the task Force and I've also been making is this isn't just a look after the City of London point.

I mean that is important, but it is actually a UK economy point because the City of London is a major economic driver of the UK economy and so keeping it relevant is important in all sorts of economic and political terms. And if we have a thriving public and private capital market in the UK, then that drives jobs, that drives wages, that drives it drives the economy. So there's a wider political and economic good that we need

to reinforce too. But Mark, I don't know whether you're you're feeling was that Boris Johnson was doing enough or not enough for it. It felt at times like actually this was something that he wanted together with the chancel Richie sooner. And we're in a political vacuum and we don't really know what the next Prime minister will do, So how much does it matter who's leading this country in this I don't think it matters that much. And to be fair, Jim Boris Johnson and his team were

doing a very good job. Number ten and very number eleven very were very keen on all this and they were very active. But I don't actually think it mattered because these reforms and these discussions that we're talking about are almost no brainers for the reasons I was just outlining in terms of the benefit of the UK economy. Look, let's be honest, there is a risk of some complacence in London when we let's EU. That's a democratic decision. Everyone's accepted that we need to make the best of

it now, but we are indifferent. As a francial center, we are in a different position. And I'm talking about in this podcast about listings, but we need to keep ourselves relevant. And that's what all these reforms were about, is what these wider attitude and or discussions are about, because we can't necessarily assume any longer that if a company is not listening in Asia, or list not listening in New York and it wants to list in Europe,

that it will list in London. Amsterdam is a very and the other juristications are very active competitors and they recognize that they have an opportunity. So we need to be fleet of foot. And and I don't just get any sense that the political change that we're going through at the moment will make any difference to this. I don't think that whoever the Prime Minister is, whoever the

chance or is, whether the Conservatives or Labor or anyone else. Frankly, it's also self evident this that I'm confident it will it won't change. But Mark, what exactly has changed with Brexit? Is it perception or is it that the pool of capital, the pool of investors? I think a lot of it

is perception. Yes, the conversations that we often have with issues thinking about where to list is the first thing they asked you do is a side by side of New York, London, Paris, frank For Amsterdam, Dubai, Hong Kong. It didn't matter so much when we were in the U because we were the default, as they said, more often than not, placed to list if you were going to list in Europe. We are not anymore. Who in Amster down host some very large I p o s

very successfully with very successful valuations. They get the same global investors coming in no global investors, and I've talked to a lot of them in the last few months through my review. I don't really mind which exchange some things on as long as they get the right valuation and they have a flexible regulatory regime around it to some extent. And so that's that's the honest conversation we need to have because in the past I think people the world where London so will always be all right.

It's not necessarily the case anymore. We will be all right as long as we have the sensible conversations and

make the sensible reforms. Now, but we've got to do it, and sometimes it requires some fairly hard conversations because in London, being candid, there are quite a lot of invested interests and commercial interests that I've got used to how we work, and the little industries that we have that sort have come off the listing side of things, whether it's professional advisors or other and we need to challenge some of those two now that those orthodoxes, those shival us if

we really want to keep ourselves relevant, because I can tell you Amster down Paris and Frankfurt will do everything they can to accentuate the positive to make people listen there, and they have enlisting terms at least any minimum standard, what's called our standard listing. And so the question for us is we need to justify why we need anything on top of that at all anymore when we're no longer the default place to list. It's fine, I mean,

we should keep our regulatory standards. I'm not, as I said earlier, we shouldn't be sawing the regular baby out with the bath water, but we need to be very clear with ourselves and honest with ourselves about what we anything we put on top of what those other juristictions have justified very honestly and very objectively. Mark, thank you so much. Thank you for listening to this week's in

the City. We'll be back next week. In the meantime, If you like our show, and we hope you do, please head over to the Apple Podcasts or wherever you listen to the podcasts and you can rate it with good reviews and also subscribe. This episode was hosted by me Francine Laqua and produced by Summer Saudi and Elena Gnatra. Special thanks to Cat van Hoof and Mark Austin. Eight