“Boring , boring FTSE”; Did Arm leg-it to avoid UK governance standards?

If anyone has been to the Emirates (or Highbury) to watch Arsenal, the title of this blog should resonate with the Gooner’s ironic chant about “boring, boring Arsenal”. Arsenal made that chant up when they were boring but won things. When Arsenal are interesting, they haven’t done so well and this is a lesson that may well have been followed by the London Stock Exchange.

Writing for the FT, Katie Martin comments on the constituent companies of the LSE’s leading index

Boring is back, and boy, has the UK got some boring to sell you, and at a cheap price too.

London’s stockmarket is not the place you go to make a quick buck

But unless you are a big fan of oil and gas companies or miners — not a huge draw for today’s sustainability-minded global asset allocators — or of banks, the rest gets pretty dry pretty quickly. This is great for patient investors, less so for those seeking rapid growth.

ARM legs it

Our stock exchange is losing the battle for new listings and is being threatened by current listings like Shell, threatening to re-list elsewhere. But it’s worrying to see the FCA being blamed by Arm, a technology giant which we’ve always considered “one of our own”.

Onerous FCA rules concerning the reporting of “related party transactions” were a crucial reason behind Arm’s decision, according to two people briefed on it. The complexity and cost of the process were also contributing factors.

It’s also worrying to read one Government official blaming its own regulator.

One senior government insider said the FCA was encouraged to be flexible in its approach, but without success: “They were asked to think big but they thought small.”

It comes as no surprise to hear the FCA getting blamed, it has become a national past time and I wonder what we are expecting from it.

Time for pensions to consider UK as the S in ESG?

While I don’t think that we should be pulling up the draw-bridge and returning to the kind of controls placed on pension funds last century, I do wonder if the current allocation to UK listed equities by our pension funds (estimated at 2%) is satisfying the S in ESG.

Starving UK listed companies of capital is hardly the best way of building back Britain and the membership of our UK pension schemes now includes the many people working for firms like AIM who obviously think they will better find equity capital on overseas markets.

There are clearly some pretty powerful reasons for Arm to list in the USA . most importantly – it’s need to achieve a valuation rather higher than might be achieved in the UK.  One official told the FT:

“The expectation was never very high for them to list in the UK. We would have basically had to rip up listing rules and dramatically water down corporate governance standards.”

If companies like Arm choose to list elsewhere to avoid UK governance standards, I would add “G” to “S” as reasons why UK pensions should consider a home bias to long-term investment.

But the best reason for us to think again about how we allocate to patient capital is self-belief. I like this comment by Julia Hoggett, chief executive of London Stock Exchange

“Having an underlying celebration of the dynamism and risk-taking that needs to happen in any economy in order for growth to be generated is really important. I think we need to do more.”

I don’t see why we shouldn’t be confident of investing through the London Stock Exchange. As Lord Jonathan Hill said in his 2020 Listing review

..let’s not race to the bottom in standards to get businesses here, let’s improve the depth of the liquidity pool

About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
This entry was posted in pensions and tagged , , . Bookmark the permalink.

2 Responses to “Boring , boring FTSE”; Did Arm leg-it to avoid UK governance standards?

  1. John Mather says:

    What protections did the UK seek in the Brexit fiasco for UK Financial Services?

  2. Alan chaplin says:

    When economy has stagnated for last decade, hard to see uk specific elements as a positive if comparing investments

Leave a Reply