The head of one of Britain’s largest insurers has decried the “perpetual drift” of companies away from London’s stock market, saying that a low-growth economy and political infighting had eroded the UK’s appeal.
The decisions last week by CRH, the world’s largest building materials group, and UK chip designer Arm to shun London in favour of listings in New York have heightened fears over the health of the UK stock market.
“We should be worried about it. We’ve been in perpetual drift,” Sir Nigel Wilson, the chief executive of Legal & General, told the Financial Times. “There’s a drift of the City to Europe, there is a drift of the City to the United States,” he said.
Wilson, who is stepping down after a decade running L&G, pointed to planning and financial rules as areas where reform was badly needed to reverse the trend.
“We made the point that the UK is a low-productivity, low-growth, low-wage economy fraught by political infighting and that has to change,” he said. “We need a massive step-up in investment in the UK.”
Wilson also highlighted a shift by UK pension funds from equities to bonds, over a period of decades, as a key driver of the drift away from London.
“If I go back 20-odd years, [our defined benefit pension funds] would be over 50 per cent invested in equities, now they’re like 6 per cent,” he said. Defined contribution pension schemes should be investing more in high-growth companies, he urged.
The lack of investment is hurting fast-growing companies that might go on to list in the UK, he added. L&G invests in 600 start-ups across its portfolio. “We want to scale up a lot of those and we want those to be FTSE constituents in years ahead,” he said. “That is what has to happen in the UK.”
Companies that chose the UK would likely create their head office here, employ legal and professional advisers, he added, but they have other options. “Everybody’s got choices to make.”
Wilson’s assessment comes as L&G reported £2.5bn of operating profit for 2022, beating analyst expectations and helped by a busy market for corporate pension deals, where companies pay a premium to offload their pension liabilities to an insurer.
Higher interest rates have encouraged this activity, by improving scheme funding levels and making it easier for them to do deals. Rising rates have also improved life insurers’ own solvency positions.
L&G said its solvency ratio — its capital as a percentage of the regulatory minimum — had risen from 187 per cent to a record 236 per cent at the end of the year.
The board said it had commenced a “rigorous process” to replace Wilson as chief executive. It is considering internal and external candidates and the process could take up to a year.