Healthy, long-term oriented capital markets, public and private, are important to the wellbeing of our global economy. A growing and persistent preference toward private equity has presented a significant challenge to public markets, which have seen a considerable drop in the number of public listings in recent years.
FCLTGlobal tackled this topic last month in London, where CEO Sarah Williamson joined a panel hosted by FCLTGlobal Member Schroders, led by Gavin Ralston, Schroders’ Head of Thought Leadership and Official Institutions.
The panel, which included Sir David Walker (Chairman, Winton Group), Nikhil Rathi (CEO, London Stock Exchange plc), Prof. Francesca Cornelli (London Business School), and Jessica Ground (Global Head of Stewardship, Schroders) discussed a range of issues related to the increasing importance of private equity plays in today’s investment industry.
The discussion kicked off with an overview of a recent Schroders’ report, noting that the number of listed companies has shrunk by about half in the US, UK and Western Europe over the past two decades. The growing cost of debt and public market regulation were among the trends leading companies to seek out an alternative in private equity.
“We hear time and again that companies dislike the short-term pressures of public markets. The cost is significant,” Williamson said. “According to a McKinsey study using US data, $1 trillion more wealth and five million more jobs would have been created if publicly listed companies had been more long-term.”
The panel discussed potential barriers to private asset investing for individual savers, considering what options are available to defined contribution pension funds. The seminar concluded with a discussion on the role of regulation and its impact on public markets moving forward. Has the balance shifted to a point where governmental actors need to weigh in? Have directives such as MiFID II and others had a lasting impact?
“In the US, the big global firms have chosen to implement MiFID II. This has shifted sell-side analysts’ focus to hedge funds. Analysis has therefore become very short-term and focused on corporate access, which is not the intended outcome,” said Williamson.
The balance between private and public equity is important to the wellbeing of capital markets and the wider economy. Improving access for the individual saver will require effort from many places, especially from within the financial services industry. As an organization who strives to better align incentives across the investment value chain, FCLTGlobal relishes the opportunity to be a part of the solution to these questions.
Thank you to Schroders for hosting such a provocative discussion.