Icy times between fund managers and bankers

Mark Kleinman
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GANT, indolent, avaricious – and these are some of the politer adjectives applied to investment bankers and private equity firms during their ongoing stand-off with City fund managers.

The permafrost between them has shown few signs of thawing since two BlackRock executives outlined in 2011 a litany of gripes about the way bankers sell new share issues.

Now add the voice of Legal & General Investment Management (LGIM), the most influential investor in the City, to this chorus of criticism.

In its submission to the UK Listing Authority’s review of listing standards, a copy of which I’ve seen, LGIM suggests a range of proposals to reform the pivotal relationship between fund managers and bankers.

Among its most notable demands is a call for banks to publish their previous performance record on company listings and to name the individuals responsible for those transactions.

It also wants to see a limit on the size of bank syndicates in order to preserve a broad range of independent research on companies, and a deferral of sponsors’ fees for up to six months after a company lists with payments linked to the average post-flotation share price.

The fund manager also criticises the widespread practice of parachuting directors onto company boards shortly ahead of an initial public offering (IPO), which it argues signals a lukewarm commitment to corporate governance.

LGIM is right. The emergence of ever-larger syndicates has acted as an impediment to the accountability of banks.

Smaller pools of advisers would redress that balance. Likewise delaying fees would demonstrate closer alignment between the long-term interests of bankers and investors.

The mutual distrust between the private equity industry and fund managers will take time to repair itself. The City’s virtually-moribund IPO market is testament to the need for it to happen.

One company that could play a role in that rapprochement is owned not by private equity barons but by Britain’s wealthiest brothers.

Step forward, Global Switch, the data centre operator founded by billionaire siblings David and Simon Reuben.

A flotation of Global Switch has been on the cards for years. A roadshow of institutional investors, which City sources say got underway earlier this month, and the ongoing rally in equity markets, lend the idea fresh credence.

The Reubens are in no rush. The motive for the roadshow, which also took place last year, is to familiarise prospective shareholders with Global Switch well in advance of a listing process – one of the other demands expressed in the LGIM submission.

Global Switch’s earnings growth profile means that it would sit comfortably in the FTSE 100, with a market value of at least £3.5bn. If it floats in London, that is.

Global Switch is an emerging markets technology play that could list as easily on New York’s Nasdaq or in Singapore as in the UK.

That gives the owners geographical optionality (as bankers might put it). It will provide another test of the City’s IPO credentials.

As a rule, chief executives prefer to project themselves as corporate predators rather than prey.

Nowhere is this narcissistic trait more stubbornly exhibited than in the City’s saturated small- and mid-cap broking sector, where the dearth of fee-generating activity is exacting a stiff toll on the survival prospects of many firms.

The dire environment has prompted tentative merger discussions between most of the significant operators in this space, including, I understand, Panmure Gordon and WH Ireland shortly before Christmas.

Another prominent name is understood to be in talks about a rescue deal that could materialise in the next few weeks.

Expect more news imminently.

Mark Kleinman is the City editor of Sky News @MarkKleinmanSky