Julia Hoggett can remember exactly where she was when Apple’s market capitalization surpassed the FTSE 100.
He had stayed up all night to write a list of everything that needs to be fixed in the UK capital market – a criticism that seems perfected by the dominance of US technology groups.
The next day he received a call from a headhunter, who asked why he hadn’t applied for the vacant job as chief executive of the London Stock Exchange.
In his previous role as director of market oversight at the Financial Conduct Authority, Hoggett had been frustrated at not being able to push ahead with improvements – but taking the exchange’s top job in April 2021 gives him the chance to start working on the list.
In addition to the British government and regulators, they want to help maintain London’s position as the capital of equity increases after the fallout from the coronavirus pandemic, Britain leaving the EU, the war in Ukraine and the implosion of the technology sector.
Apple’s milestone was followed by another depressing statistic. Last year marked the smallest amount raised by an IPO in London for at least six years, falling from £14.3bn in 2021 to just £1bn.
London then suffered the added fury that Paris followed as Europe’s largest exchange by combined market capitalisation.
“Basically, London is getting bigger and bigger because Europe is getting bigger and bigger, because it is the dominant center for financial markets in the EU,” Hoggett said in an interview with the Financial Times.
“Now we don’t have it. We have to be young, scrappy and hungry about how we want to fight to grow.
Hoggett is concerned that some in the City have become complacent, and is reluctant to take a hard look at whether the rules of the London market have become out of date as more investor capital flows to the US and Asia.
“There’s like a debate about what needs to change,” he said. “We need to have a market that can attract many companies from the UK and abroad.”
Hoggett is seen by many executives in the City as a welcome force for change. She is one of the top LGBT+ financial services leaders and an advocate for women and minorities in the workplace, with some marking the same dedication as her mother, former Supreme Court president Lady Brenda Hale.
At the time Hoggett took over the LSE, the government had commissioned a review of the British capital market by Lord Jonathan Hill, which led to relaxations of rules in areas such as dual-class shares and free float restrictions.
But he saw the need for the City itself to step in the next stage of reform, predicated on the idea that the UK should be better at “encouraging people to have good ideas and make them happen”.
“Sometimes the founders say that the cost of going public is not worth what I’m getting,” he admits.
Hoggett is a government-backed group that seeks to increase employment in the UK capital market, and is pushing for reforms in a number of areas to boost UK companies and provide better access to investment for savers and pensioners.
They expect meaningful changes this year, although the FCA will implement many of the necessary regulatory changes.
Working with the task force, Hoggett identified four broad “ecosystem issues” in the UK market. First there is a shortfall in “risk capital” – active investors are willing to take bets on high-growth sectors and companies.
In part, he says, this reflects “passive” investment growth but also the conservative nature of some UK institutional investors who buy equities for regular dividend income rather than potential company growth.
In 1990, he noted, 32 percent of pensioners in England invested in British equities. In 2018, this has dropped to 2 percent. He compares this to Australian and Canadian superannuation funds which often invest in UK assets.
The task force is working on this area alongside the government’s plans to overhaul Solvency II rules to make it easier for UK pension funds to invest in alternative assets.
The second problem for Hoggett is the steady decline in corporate research over the past few years, partly due to the lack of transactions from research under the Mifid 2 rules. Here again the LSE is working with the regulator to change the rules this year to improve corporate research.
“Are we serving investors properly with the information they need to make decisions, especially when it comes to next-generation technologies?” she said.
The potential for the UK’s corporate governance code to hold back corporate growth is another worry. “Is it really still relevant to what the next generation of companies need? What is the role of proxy agencies?” said Hoggett.
They are also worried about whether the UK can support start-ups to grow into national champions in the future, pointing to data that the majority of funding comes from overseas.
“The result is that councilors become owners [and] the decision where the company locates its headquarters, when they are deciding the next generation of the growth.
As part of the solution to this, the LSE is in discussions with the government and the FCA on how to make the market regulated so that private companies can trade their shares more easily.
Hoggett said the UK needed to “remove the cliff edge effect between the public and private markets” by having a market where start-ups can trade shares, allow staff to sell stock options and “enable institutional investors to start following the company at an early stage”.
That’s often when there’s a lot of value in fast-growing businesses, he said, and means companies won’t be forced to go public before they’re ready.
Hoggett wants further reforms to make the public market as attractive to new companies as possible. He said the FCA’s decision to have one or two segments on the LSE “will be a make or break moment”. They are pushing hard to collapse the market into one regime instead of keeping it standard and premium.
“One of the challenges, fundamentally, is that the UK system is well-prepared for companies with large assets that are spending cash. And it’s not well-structured for fast-growing IP-based companies. However, if you look at where there is a lot of growth and economic dynamism, now it’s at the end.
He pointed to the need to change the prospectus regime to make it faster and cheaper but admitted: “This is a big change. We’ve been doing it this way for a long time.