The UK must ramp up the quality of research it produces on homegrown companies in order to unlock more pension cash to flow into the stock market, the mastermind of a major review of UK investment has warned.
Hogan Lovells lawyer Rachel Kent, who authored the recent government-commissioned Investment Research Review, said the quality of investment analysis in the UK had declined in recent years and reviving it would be crucial to boosting domestic investment.
Calls have been growing for more pension cash to flow into UK listed firms, after two decades of sharp de-equitisation in which pension cash has fled the market.
Just four per cent of the UK stock market is now held by pension funds — down from 39 per cent in 2000, according to think tank New Financial.
Speaking with City A.M., Kent said that improving the quality of investment research would help encourage investors into the market and deliver a boost to savers.
“I’m personally very much on the side of solving this problem — encouraging pension schemes to invest more in equities would have a beneficial effect for them,” she added.
“This is not about ‘take money from pension schemes to sort out a problem with issuers’. If you look at the growth of the UK pension schemes and US pension schemes there’s quite a staggering difference.”
Kent’s research review was turned round in just four months this year, amid fears of a decline in the quality of analysis on UK companies. A slump in the number of analysts based in the UK has accelerated in the past five years after EU-era Mifid II rules forced an overhaul in the way that companies pay for analysis.
Among the recommendations in her July review, Kent tabled a new platform that would produce cheaper analysis with funding potentially committed by the industry or government.
She told City A.M. that if the UK wants to get pension money invested in a broader range of UK equities “then we need more research and it needs more funding”.
An overhaul of the research landscape was described by London Stock Exchange chief Julia Hoggett as one of the key “five fingers” of reform needed to revive the market this year.
However, Kent said the input into her review from the pensions industry had been disappointing.
“The pension schemes — or at least the trade bodies representing them — I think didn’t seem to be as focused on the issues raised in the report as I would have liked,” she added.
“If we struggled to get input at all, it was from that quarter.”
