A top UK fund manager has defended domestic pension funds for cutting their exposure to London-listed stocks, warning that the City has fallen into the “backwater” of global equity markets.
Nick Train, who co-founded investment firm Lindsell Train, which manages over £18bn, said that “the sad fact is you can understand pension fund asset allocators’ disenchantment with and disinvestment from UK equities”.
He pointed to the UK’s “dismal capital performance” over the past 20 years and the “absence [of] globally significant technology champions” as reasons for London’s “unwelcome reputation as a backwater in 21st century equity markets”.
Train’s comments come as British pension funds and insurers have fallen under the spotlight for reducing their exposure to UK-listed equities. Their holdings have plunged from about a half to just 4 per cent over the past two decades, according to investment banking boutique Ondra Partners.
In recent months, a string of companies have pointed to the allure of a listing in New York. Earlier this month, CRH, the Irish group that is the world’s largest building materials maker, announced plans to move trading in its shares from London to New York, while UK chip designer Arm has opted to list its stock on Wall Street. Anglo-Dutch energy group Shell has also explored leaving Europe and moving to the US.
Train said: “So, who am I, or any commentator, to argue that UK pension funds made a historic mistake in running down their UK equity exposure?
“Indeed, perhaps they responded rationally to the lack of value-creating companies listed on the London stock market and have been wise to focus instead on more promising global stocks, or even Index-Linkers.”
He added: “It is not the primary job of pension funds to bankroll the UK corporate sector, or even to back untested UK technology or business models.”
Other fund managers have pointed to a change in accounting rules in 2000 as one of the key drivers for pension funds reducing their equity holdings in favour of fixed income to match their liabilities.
Richard Buxton, a UK equity fund manager at Jupiter, and David Cumming, head of UK equities at Newton Investment Management, have both said the two-decade old rule needs to be swiftly removed to encourage institutional investors to shift their money back into domestic stocks.
But Train said even though UK pensions have cut their holdings, international investors have snapped up London-listed stocks and now represent over half the ownership of the UK market.
“Perhaps smart global investors can help UK companies pursue growth strategies better than liability-haunted UK pension funds,” Train added. “The UK stock market has disappointed for a long time now, but it contains some genuinely world class companies that global investors are snapping up, even if UK institutions can’t or won’t.”
He pointed to Warren Buffett’s Berkshire Hathaway doubling its stake in UK-listed consumer goods company Diageo in recent months, in which Lindsell Train is a top 10 shareholder.
Train added: “As pension funds have reduced their exposure to these fine companies, we have helped take up the slack.” Lindsell Train is also a top 10 investor in other FTSE 100 companies including Burberry, Hargreaves Lansdown, Schroders and Unilever.
The Lindsell Train UK Equity fund fell by 6 per cent last year, underperforming the FTSE All-Share index, but has returned an annualised 10 per cent since launch.
This article has been amended to clarify that CRH is an Irish company