Charlie Conchie interviews the biggest movers and shakers in tech, fintech and financial services. This week, it’s Hogan Lovells lawyer and Investment Research Review chief, Rachel Kent.
At a breakfast event last month to welcome the City minister Bim Afolami to his new brief, the Quoted Companies Alliance painted a stark picture to the room.
In the 12 months prior to the meeting, more than 100 companies left the London Stock Exchange. In the previous month alone 14 had gone. One was even snapped up on the morning itself.
Hogan Lovells regulatory partner Rachel Kent recounts the warning to City A.M. before so much as mentioning the investment research review that thrust her name to the centre of the conversation last year.
“I’m simply endorsing, with someone else’s statistics, the frankly pretty dire state of the securities market,” she says in an interview at the firm’s Chancery Lane office.
Kent is not someone leaning in to gloom for its own sake. She has skin in the game after laying out a laundry list of improvements to the UK’s decimated research investment industry last July.
The government-commissioned review was turned round in double-quick time and she emerged after three months in July with a to-do list for the government and regulators. Among the key measures were a new platform that would produce cheaper analysis on UK listed companies and a recommendation to get proper company research in the hands of retail investors.
The review was designed to revive the analyst landscape in the UK after European post-financial crisis MiFID II rules forced banks to repackage investment analysis, inadvertently gutting the research industry across Europe.
European brokers shrunk their analyst teams by at least three times more than US firms in the seven years after the rules came into effect, according to a report by analytics firm Substantive Research.
But after Kent’s speedy turnaround, progress has somewhat stalled.
“I am frustrated because it’s part of our day job here – if your client asks you to do something, we find a way to get it done quickly, we’re do-ers. So it is frustrating in any circumstance,” Kent adds.
“I know, because I also advise government, it’s a different world, it just takes longer. The machinery of government necessarily has frictions that the rest of us don’t encounter. So that is frustrating.”
Even with the creaky processes of Westminster weighing on the process, she says she has “rarely seen such focus and such energy and enthusiasm” from ministers as they lean into tackling the crisis facing the UK’s equity markets.
There is a fundamental issue, which is risk appetite
City minister Bim Afolami told City A.M. on Friday his priority was “strengthening” the UK as a listing’s destination and “taking forward reforms to make it quicker to list”.
Jeremy Hunt yesterday called in some of the City’s top figures for a summit on how best to get cash flowing into the public markets. A British ISA was reportedly top of the agenda to give retail investors tax breaks for backing British firms – an “fantastic” idea, reckons Kent.
But for all the reforms under way and legislative tweaks, she points to another of the City’s familiar gripes underpinning any serious reform efforts: the City’s taste for risk.
“There is a fundamental issue, which is risk appetite,” she adds. “That comes from pension schemes, institutional investors, largely DC pension schemes, but also increasingly and importantly, the retail market.
“So there is a precondition to making things in my review work – if you don’t have demand for equities, what’s the point of having research?”
The drop-off in pension fund’s equity holdings has dominated conversation across Westminster and the City over the past year, with the call for more retirement cash in the market becoming a familiar refrain.
But the untapped pot of retail cash is creeping up the agenda. Back in July, Kent called for the more widespread dissemination of research to the masses to help unlock the money, but the plans are currently caught in a regulatory tangle. Officials can’t decide whether the everyman is equipped to read the same notes as asset managers, and as a result, they’re left with nothing at all.
“If you’re a large pension scheme, you can access the research, if you’re me, you can’t access the research, despite being encouraged by the government to make the investment,” she adds.
Regulators are worried about amateurs not understanding the numbers. But as Kent points out, even “reading the introductory summary about what the business is” and what the opportunities are would be better than nothing.
Getting on with it
Kent’s view is one of pragmatism. She doesn’t shy away from the bruised state London finds itself in and admits for all the troubles facing the rest of the world, the City is hurting more than most.
“I know sometimes people say, ‘Oh, stop whinging about the UK exchange’s plight, it’s the same everywhere’.
“Exchanges might be suffering from challenging times everywhere, […] but that’s not my perception – my perception is the US stock market is not suffering as much as we are suffering, they are way healthier than our public markets.”
Kent has been among the key figures to draw up some potential solutions. While she stresses they’ll prove no “silver bullet” to the market malaise, it sounds like she’d like to at least get on with it.