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City grandee Archie Norman has criticized the lack of UK pension fund money invested in British companies and the decline of corporate share options as reasons for the long-term malaise of London’s stock market.
Norman, who is chair of M&S and sits on the board of private equity firm Bridgepoint, told the Financial Times that it was “undeniable” that the sharp fall in UK pensions investing in equities “has substantially reduced the depth” of available money to back domestic stocks.
“Most large corporate pension funds are invested for low risk and low return,” he said. “If they had been invested in index-trackers or private assets, we would probably have wiped out many pension deficits and created a pool of capital available to invest in British institutions.”
He added: “I’m on the board of a private equity firm which is substantially investing in European companies, but our money comes from the large [international] public sector pension and endowment funds.
“They are invested for long-term return, creating a deep pool of capital, a thriving stock market, and the growth of private companies — but this is not happening in the UK.”
He also pointed to the decline of corporate stock options. “If you go back 30 years, everyone used to have share options — the normal way of paying executives then was you got a salary and a bonus and share options.”
His comments come as the London Stock Exchange has suffered from a dearth of corporate listings in recent years, as companies have opted for New York in search of higher valuations and deeper capital markets.
Signs of a revival of initial public offerings have emerged in recent weeks, however, as a few companies including microcomputer maker Raspberry Pi plan to list on the LSE.
The lack of pension capital stems from an accounting change in 2000 that led defined benefit schemes out of equities and into bonds to match their liabilities — payouts to employees.
As a result, pensions and insurers have slashed their equity exposure from half their portfolios to 4 per cent over the past two decades, according to advisory firm Ondra.
Norman, a former Conservative MP, added that the auto-enrolment of employees into company pensions was a missed opportunity for savings to be channeled into domestic stocks.
“We now have auto-enrolment, so everyone now has a pension scheme, but most have no idea what it’s invested in. We’ve done this when there’s such an opportunity to say to people your savings are invested in British industry.”
Norman added that at Asda, where he was previously chief executive and chair, about 70,000 colleagues including checkout operators and store cleaners had share options and became shareholders.
“We’ve now taxed share options and made the accounting treatment unpalatable for companies [making them less popular]. Wouldn’t it be a good idea if, in a big British company, more of their employees owned shares?”
