Ministers must do more to stop the “exodus” of cash from the London Stock exchange after 41 consecutive months of outflows from UK equity funds, the boss of Peel Hunt has warned.
In an interview with City AM, Steven Fine, who heads the AIM-listed broking house, said the speed of money leaving the market was “alarming” but not enough was being done by ministers and regulators to arrest the trend.
“I’m genuinely alarmed at the exodus of funds for 41 consecutive months and the relentless de-equitization of companies, and I think that needs to be addressed,” he said.
“If you were considering listing – and I don’t think there’s any shortage of interesting companies that would choose the UK to list – however, who’s going to buy and where is the demand going to come from?,” Fine added.
While the Financial Conduct Authority overhauled the rules governing listed companies in July, Fine said the speed of outflows remained the central issue plaguing the health of the London Stock Exchange.
He called for more generous tax breaks to encourage a “home market bias” among domestic investors, as well as setting out “strongly worded” guidelines for “what pension funds should be doing in the home market”.
A dearth of UK retirement cash flowing into the market has been seen as one of the key reasons for the sluggish growth of UK stocks. Just four per cent of the market is now owned by pension funds, down from 39 per cent at the turn of the millennium, according to think tank New Financial.
Under current rules, UK investors also face a stamp duty charge when buying shares in UK companies as well which critics say penalises domestic investment.
The Chancellor Rachel Reeves outlined plans to consolidate sprawling local government pension schemes in a bid to unlock investment last month and said pension fund reform would be key to her the government’s plans.
“This will unlock more private investment to fuel the government’s growth mission,” she has said.
London Stock Exchange exodus
Outflows have been blamed in part for a valuation gap between UK listed companies and international competitors and have been cited as a reason for firms exiting the market and agreeing to take-private deals.
According to data from funds group Calastone, UK equity fund withdrawals reached their largest on record in October as investors pulled billions out of markets to escape tax rises in the Budget.
Investors sold a £2.7bn stake in funds throughout the month in anticipation of Chancellor Rachel Reeves hiking capital gains tax, up from £564m of withdrawals in September.
Steven Fine has called on the government for further action to prevent funds leaving the market
The London Stock Exchange is on course to attract its lowest level of IPOs on record this year with just 14 firms having floated across its main market and junior AIM exchange.
Fine said that he believes the IPO market is “coming back” but any meaningful rebound was unlikely to come until at least the back end of next year.
“I do think it’s going to be in 2025. I think it’s probably going to be the second half of 2025 for IPOs. I think there is pressure on private equity to exit,” he added. “I think there’s pressure on them to demonstrate liquidity.”
The comments come after Peel Hunt reported a return to profit in the first half of its financial year, driven primarily by an increase in fees from mergers and acquisitions.
The firm posted a pre-tax profit of £1.2m, a 250 per cent rise on the £800,000 loss posted in the same period last year. Revenue rose 26 per cent to £53.8m in the period.
“We were able to capitalise on improving market conditions in the first few months of FY25, most notably executing two IPOs, collecting material M&A fees and generating increased trading revenues,” Fine said in a statement on Friday.