The London Stock Exchange endured an annus horribilis in 2023. Only 23 new listings came to market, with a total value of less than $1bn. This represented a 23% year-on-year decline in initial public offering (IPO) proceeds and a 53% fall in the IPO count.
Meanwhile, the number of listed companies in the UK is down by about 40% from a peak in 2008. Between 2015 and 2020, the UK accounted for only 5% of IPOs globally.
One small consolation is that London has not been alone in its misery. White & Case calculates that EMEA IPO proceeds dropped by 44% in 2023 year on year, with the IPO count down by almost a third.
Rising interest rates, high inflation and geopolitical uncertainty have all been blamed. A gradual decline of institutional investment in UK equities is also behind the domestic downturn. According to the UK’s Office for National Statistics, insurance and pension funds held only 4.2% of UK listed shares at the end of 2022. This figure is in stark contrast to the 45.7% reported by ONS in 1997.
Why so? Reasons include regulatory changes that encouraged pension and insurance funds to transfer into products such as corporate and government bonds, and better returns on offer in other markets, notably the US.
This week's feature on solicitors advising on capital markets is particularly well-timed. Last week, City watchdog the Financial Conduct Authority announced an overhaul of the listing rules aimed at alleviating the malaise. These new rules ‘represent a significant first step towards reinvigorating our capital markets’, trumpeted new chancellor Rachel Reeves – though of course she was languishing on the opposition benches during their gestation.
Will the overhaul work? Critics, including the Local Authority Pension Fund Forum, have voiced concern about the active role played by the LSE in calling for weaker UK governance standards to attract more investors. But solicitors are more upbeat. One tells the Gazette that the FCA has succeeded in striking a balance that offers more flexibility while retaining London’s self-image as the ‘gold standard’.
We’d better hope so. Not least because one unfortunate side-effect of London’s decline is a dearth of mid-level associates who actually have the necessary experience to advise on IPOs.
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