ALEX BRUMMER: Public markets lose allure

• Regulators have over-complicated the rules 
• Disclosure requirements making public markets a hostile environment
• Investing in shares has always been risky

Rebuilding confidence in risk taking and public share markets in the City is a big ask. The Edinburgh reforms are intended to give it a quick start by encouraging UK pension funds back into the market.

The London Stock Exchange’s plans to sweep away rules which hinder premium listings and hold back initial public offerings (IPO) are part of the solution.

The slow drip of primary quotes to New York – Dublin-based Smurfit Kappa is the latest – should not be seen as a disaster.

Smurfit and WestRock opted for a bear hug because both enterprises lost momentum after a Covid-19 boom when demand for cardboard boxes soared. For the record, the intention is to keep a secondary quote on the LSE. A shrinking number of listed companies in London, and rise of private equity, family offices and sovereign wealth buyouts, is not just a UK phenomenon.

The New York Stock Exchange and Nasdaq both spend a great deal of effort on the razzmatazz of IPOs and big deals, with the ringing of loud bells and the cheers of advisers and colleagues involved. But it is a losing battle. The number of quoted enterprises on the main US stock markets has plummeted from 7,300 in 1996 to just 4,500 now. The valuation of the markets looks healthy because of the domination of the big Silicon Valley beasts. 

The reality is that even though the US has a much stronger equity culture than Britain, with stockbroking offices in many smaller towns, popular 401K saving accounts for pensions and the constant analytical chatter on the money channel CNBC, longer-term trends are not dissimilar to London.

Back in 1996 there were some 1,000 enterprises in private equity hands operating in the US. At last count, there were more than 10,000 firms that have vanished into the hands of private capital. When KKR paid £20billion to buy out RJR Nabisco in 1988, it was a cause celebre, graphically described in the instant book Barbarians At The Gate. These days, nothing looks too big or complex for private equity as the UK saw when private equity backed Kraft Heinz sought to buy Unilever. Private equity or sovereign wealth is everywhere, from New Zealand rugby to Spanish telecoms.

It is much easier for executives to run corporations behind closed doors. Some do come back to the public markets, spruced up with leverage. The reality is that private ownership is a hiding place, away from transparency and rule-making on public markets. Billions of dollars and pounds of compensation, through carried interest – the profits made on deals – goes unrecorded publicly and tax treatment is favourable.

Who is to blame? Primarily, the regulators who have over-complicated the rules and disclosure requirements making public markets a hostile environment. Investing in shares has always been risky.

As owners of Carillion, Wilko, Thomas Cook stock and others will now be aware, they are bottom of the heap when it comes to insolvency. But wrapping publicly quoted companies in cotton wool – so they are as safe as US Treasuries – has gone too far.

New blood

Britain’s research universities continue to deliver. The FT reports that a biotech spin-off from the University of Exeter, Attomarker, has succeeded where Silicon Valley start-up Theranos failed so spectacularly with its founder Elizabeth Holmes serving a jail sentence.

Attomarker has pioneered a prick blood test, initially successful in identifying long Covid, which could detect a wide range of other conditions by identifying markers for female fertility, food allergies, diabetes and Alzheimer’s in seven minutes.

It may take a little longer. But given recent biotech departures, there must be good odds on a breakthrough diagnostics, developed by a team of UK based scientists, falling into overseas hands.

Teflon toasted

Andy Hornby’s career is littered with failure, from crashing HBOS in the great financial crisis to being ejected from Boots.

After stacking up untold riches as the hidden hand at Coral, and later gambling giant GVC, he ended up as chief executive of struggling fast-food outfit The Restaurant Group, owner of Frankie & Bennie’s and Wagamama. The turnaround has been slow, the shares tumbled and Hornby passed Go with more chunky pay cheques.

Chairman Ken Hanna is doing the right thing and leaving in the face of an investor revolt. As for Hornby, he is staying put for the moment. Shameless.