Maurice:

Hello everybody and welcome to the latest edition of C&F talks where we interview speakers at some of our forthcoming events. Today, we're very fortunate to have with us Julia Hoggett who's the CEO of the London Stock Exchange PLC. And Julia is going to be speaking at the International Capital Markets Summit which is being held as part of City Week, next Monday the 20th of May at the Guildhall in London.

Welcome, Julia.

Thank you and I'm delighted to be joining you at City Week as well.

Thank you, we're very pleased to have you with us.

Maurice:

Obviously it's been a good weekend in terms of press speculation about forthcoming potential IPOs of Shane and of Raspberry Pi and a rather better backdrop I think, than some of the doomsters who've been commenting recently but of course, you know, there has been widespread acknowledgement that the UK equity capital markets have been somewhat subdued. And you chair the Capital Markets Industry Task Force, which was set up to address some of the key issues that are involved. And I know that the task force is reporting in July but perhaps you could share with us some of the thoughts about the root causes and your objectives and the post progress you've made.

Of course, and I thank you for mentioning this weekend's reporting as well. I think you're right, that sometimes we can get ourselves into a bit of a trap of talking things down when in fact we have far more strengths as a UK capital market than I think people give us credit for. Absolutely.

If you look at our context, we're the sixth largest economy in the world. But as of the beginning of May, we were the third largest capital market by capital raised year to date so we're actually punching considerably above our weight. And the only two economies above us were the US and India. And so, I think that we need to recognise and level set that. But the Capital Markets Industry Task Force was created in part because I think over many years we have built up a series of different pieces of regulation that have operated in isolation, rather than working together to make sure that our ecosystem can continue to evolve to meet the needs of companies and investors in the many years to come. And if you look at the way companies are created, if you look at the way value is created then fundamentally that has changed rather radically over the last 40 years but not all of our regulation has done so.

The FCA would acknowledge in their own point that the reforms we're going through at the moment are the largest set of reforms in 40 years and so some of the challenges have been that we have an immense strength as the UK and some of those hard to recreate things, we have superb universities, we have a world-leading capital market on a multi-asset basis by any measure, we create more unicorns than anywhere outside the US and China, but we've not always connected those things together as effectively as we could do. And I'd also argue that we've also disconnected our retail investors and the average man on the street, from the importance of how our capital markets function because it makes a difference to their lives

And so the task of CMIT was to try and look at all of these things in the round and we have a very simple vision statement which is how do you create the best possible environment in the UK for great companies to start here, grow here, scale here and stay here and how do you make sure our capital markets have the best possible assets for our policyholders, our pensioners and our savers to have enough money for life events and old age.

And so we've been looking at all of the different ecosystem components and making sure that they can really answer that exam question as effectively as possible. And in order to be at the top of the tree you need to continue to iterate to meet the needs of all stakeholders, and I think that's the thing that the UK is doing right now in a really, really impressive fashion.

Yeah, fantastic and you know one of those changes that you're talking about or reforms you talk about you mentioned was the listing rules which obviously as you say are undergoing a major, major change.

Maurice:

Do you think we now have or will have when they come fully into effect the right balance between, on the one hand protecting investors and on the other, making London attractive as an international venue for companies wanting to list their shares?

Yes I do in short. And one of the reasons is that actually the best way of protecting investors is to give them access to the best range of assets that enable them to benefit from the growth and development of the economy. And ultimately for the economy's sake to enable those companies to exist and to become globally consequential from the UK to create the jobs the tax revenue and therefore the investable income that can create that successful flywheel for the economy. And I think fundamentally as I made reference before, that we haven't seen this material and upgrades or change in our listing rules for 40 years the way value is created is very different from 40 years ago.

If you look at the S&P 500 80% to 90% of the value in the S&P 500 is IP and therefore having listing rules that are based on fixed assets throwing off a certain amount of predictable cash, that is how a certain portion of the economy works but it isn't how all of the economy works. And therefore we want to make sure we have listing rules that maximize the ability to create value and for companies to create value that investors can then benefit from across the broadest breadth of the economy and that is one of the things we create these companies at a brilliant rate and create some superb companies, but we haven't necessarily had listing rules that have worked as well as they could do for those forms of company.

Maurice:

Yeah, and you mentioned the difference or the change in how value is created you know a number of the technology companies have made comments that they can achieve a higher valuation in the US perhaps because there is a more favourable risk reward culture, or perhaps there's a deeper understanding of technology stocks or both. Do you think that there's any truth to that argument?

Well, I understand how on a simple multiple basis if you compare the FTSE and the NASDAQ you might come to a different number on a gross basis because the components are different but that's actually a meaningless number to any individual company. And I've seen the analysis undertaken by a number of investment banks that have taken like peers so like pairs of companies who are in the same sector adjusted for the growth rates and dynamics of the individual companies and found that there's as great a percentage of companies listed in the UK that trade at a higher multiple than their US counterparts, than there are US companies listed in the US trading at a higher multiple than their UK counterparts and the rest are trading about in line.

So, I think the narrative around that is kind of simplified and misunderstood and overdone. I would also say and I say this regularly that a listing is for life it's not just for Christmas. And if you look at the long-term performance of companies that leave the UK and trade in the US, in the last 10 years there are only 20 companies that have gone from the UK to the US and raised over 100 million there are actually 8 US companies that have gone the other way in that time so even the net number is not very high.

8 have delisted, only 3 are trading up and the rest are trading down around 70-75%. So the idea that it actually produces a better outcome, I think is also increasingly understood as not necessarily being the case. So, a lot of our work is to make sure that we get people to really look at the minutiae, the detail because the facts in this regard and make sure that we do everything we can to make sure people understand and make a balanced judgment.

Yeah, I mean it seems to me you mentioned the narrative and the narrative being imprecise and not looking at life for life which I fully agree with but do you think that the narratives rather run away with it? Do you think that there's a need for a stronger communication to make these points more clearly, so to get better balance in the media and social media and so on?

Well the first thing I would say is if with all respect to the media, actually if you read the articles rather than the sub headlines I think we are tending to get more balanced actually. And so I think we do need to recognise but I do think there is a drip drip drip, and the thing that has been missing in some regards has been that context.

So, we've talked about the going private dynamic in the UK, but I don't know if you saw Jamie Dimon's letters to shareholders earlier this year. In it he bemoaned that in 1996 there were 7300 publicly listed companies in the US, and today there are 4300. And so the idea that we're reporting these shifts in the dynamics of how capital moves around the world as being a uniquely British problem, I think is again missing the context. And that is very often the case. And I think that's the thing we have to recognise. But it doesn't mean we shouldn't evolve and make sure that we are trying to be the world leader in addressing those sort of existential and temporal shifts that are happening in capital markets around the world not just in the UK.

Yeah, I fully agree with that.

Maurice:

And of course, the innovation of PISCES the intermission trading facility for pre-IPO companies seems to be a great sort of halfway house between public and private markets. How much interest have you had from if I may ask in general terms have you had from potential candidates so far and how might having your shares traded on PISCES actually lead to a UK IPO?

Well, I think there's two things so to answer your direct question a huge amount of interest, is the honest answer. Because I think there is a genuine recognition I used to describe it that private markets were from Mars and public markets were from Venus, although as I haven't read the book I couldn't attribute which one was which. But we've had too many cliff edges between the private markets and the public markets for too long. And if you look at the evolution of companies and their journey and the amount of private and VC money that they're now receiving and the significant scale that they get to, then the idea that these companies first meet institutional investors who are then going to be supporting and shepherding them through the next evolution of their journey at this one singular point of an IPO, is a curious one in itself it's just a construct of how we've done things historically.

But equally public markets are intensely democratising. Fundamentally they're about providing more and more access to a broader range of society to the potential value that's created in society by companies. Having a very large amount of that value created in the private markets is less democratising. But it also creates constraints on companies in terms of their ability to find access on a reliable basis to ongoing liquidity. And indeed that's a challenge that we've seen in the private markets over the course of the last several years, now that we've seen this shift in the interest rate environment.

The other facet of the UK is we've got the largest second largest pool of institutional money in the world, but we haven't had as much of it able to invest in private assets as we could have done or as is the case for example in other parts of the world. And therefore the mansion house compact that was driven by Nick Lyons when he was the Lord Mayor very much to focus on DC pension schemes directing five percent of their capital into UK private companies, is very much to drive that seed and nation venture environment in the UK. So that we can create globally consequential companies in the UK.

Now PISCES is bringing all of that together. It's fundamentally about saying how do you create opportunities for liquidity events for private companies, that enable angel and seed investors to have a transparent price formation process so that they can get back to being angel and seed. It enables those institutions in the mansion house compact to start following private companies using the pipes and plumbing that they used to buy public companies today, and it gives VCs and Ps another exit strategy from their holding that doesn't force a company into a trade sale or an IPO ahead of their time. That may seem weird as me saying as the CEO of the London Stock Exchange saying that last bit, but fundamentally issuer agency and the ability of founders and leaders of companies to be able to make the choices they want to about how they drive their strategy going forwards and have that agency is a really important thing for me.

But the other thing in the UK context, is that this is also critically potentially to create liquidity for staff. So, that would hopefully mean that companies that use this venue are more attractive employers and a war for talent on a global basis than other companies that are not but it's designed to create that inflection of change liquidity environment that helps us boost our domestic VC and PE investor base. And there is absolute appetite to do that if you see what the British Business Bank's doing, if you see what Mansion House compact's doing we have a recognition that we have superb assets in this country. But we do need an evolution of the way our institutional capital is directed so that we can make it easier for them to participate in that. And hopefully that means not only we have savers and investors and pensioners in the UK that are getting the added value of the upside of access to those sorts of assets, but equally we've got scaling companies across the UK who are an enormous provider of high growth jobs and jobs very often that are over the national average wage. A great source of financing for those companies or liquidity for those companies to enable them to genuinely scale. And that may indeed create more IPO candidates in time, because fundamentally you don't create consequential public companies unless you credit consequential private companies.

Absolutely well it's clearly a great innovation and we're leading the pack so to speak on that. Now for our viewers, if you'd like to hear more on these very interesting topics please do try to attend the event in person, again it's the International Capital Markets Summit taking place as part of City Week at Guildhall London on the 20th of May, we very much hope to see you there in person www.cityweekuk.com for further information.

Julia, looking forward to seeing you next week, thank you very much for sharing those thoughts

Absolute pleasure and looking forward to being there.