D-BE investors in UK stocks are in a bad place right now. The long-only funds have too few successes to boast about and the hedge funds are scared of ever-increasing redemptions.
As far as the majority of the UK investor base is concerned, IPOs of untested UK companies are distinctly off the menu.
Those same investors are also loathe to back transformational mergers too. Hence the G4S £5bn-plus bid for ISS failed; some say it was torpedoed by a reluctance from some investors to buy out ISS investor Goldman Sachs at what they believed was too high a price.
It is too soon to say whether G4S shareholders were right to have had qualms about the ISS deal. But investors in the Prudential, who vetoed a $31.5bn deal for AIA last year might be interested to know the group they turned down is now worth nearly $38bn. The loathing of private equity sellers is very real and follows instances like the float of Debenhams where private equity groups got out with all the cream. The existence of private equity advisers, groups who advise private equity sellers, to get the highest price possible for their stakes, contributes to this feeling of unease.
But if investors are wary of new companies and transformational deals, some also seem to be wary of the very types of groups that are currently keeping the market alive; the resource rich groups that are part owned by Russian oligarchs or other offshore shareholders. These groups are often keen to gain a listing in London and raise billions by offloading a minority shareholding.
Here, UK institutions appear to be behaving like they still lived in a world where the FTSE100 index was comprised of companies like Cadbury and ICI (both now in the hands of foreign owners).
Rather than embracing the new companies like Polymetal or Essar Energy, they are running scared of them, fearing their increasing influence on the indices and what that means to their tracker fund offerings. Yes, there has been the odd corporate governance disaster (ENRC) but overall some of the foreign-owned resource groups have done well.
As Bank of America Merrill Lynch’s head of equity capital markets Craig Coben says: “The tough markets have affected the portfolio performance of institutions, and when performance suffers, it has a knock-on effect for their appetite for new issues.
“The new issue market will re-open once we have a recovery in risk appetite.”
For the sake of the London markets, that appetite for risk had better return soon.