Meet the team plotting to revive the UK’s capital markets

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In today’s newsletter:

The club of City executives plotting a revival

It was the summer of 2022, and the three-century-old London Stock Exchange was confronting a prolonged drought in listings, a domestic pension industry shunning UK equities and a morale-sapping anxiety that any homegrown company aiming for global success would choose to float in New York.

Dame Julia Hoggett, chief executive of the bourse, decided to take matters into her own hands.

She convened a group of City grandees, advisers and investors, among them Schroders chief executive Peter Harrison, Sir Jonathan Symonds, chair of FTSE 100 drugmaker GSK, and Sir Nicholas Lyons, former lord mayor of the City of London and now chair of pensions group Phoenix, each armed with their own motivation for rebooting the market.  

The idea was to drive a radical overhaul of the UK’s capital markets, win political backing for the changes and try to counter what the group saw as a corrosive negativity engulfing the London market.

In this article, Michael O’Dwyer and I explore how two years on, the efforts of the group, which calls itself the Capital Markets Industry Taskforce, and the fortunes of the market, are at a critical juncture.

Polls have put the apparently City-friendly Labour party on track for victory in the general election on July 4, the flotation of microcomputer maker Raspberry Pi this month has dispelled some of the gloom, and there are tentative signs of a global recovery in initial public offerings.

“We’re at a very delicate tipping point right now where issuers and investors are starting to listen to us,” said Mark Austin, a CMIT member and corporate lawyer at Latham & Watkins. While not expecting a recovery in flotations until at least late this year, Austin insists that sentiment towards London is improving: “The tide is turning.”

Convincing more companies to list is one measure of success, but it is not the only one. The group’s agenda includes reforming a risk-averse pension system and finding ways for start-ups to secure domestic funding to scale up and stay in Britain, even if they opt to remain private. 

Read the full story here and don’t miss our FT Film on what is being done to improve the City’s competitiveness as an international capital market.

Wealthy foreigners step up plans to leave UK

The UK’s “non-dom” regime, which allows some of the country’s residents to avoid paying tax on overseas income, has become something of a political football. 

In March, chancellor Jeremy Hunt stole one of the opposition Labour party’s flagship fiscal policies when he announced the abolition of the regime. Labour shadow chancellor Rachel Reeves followed with proposals to toughen the planned crackdown, notably reversing a Conservative decision to permit non-doms who will lose benefits from next April to shield foreign assets held in an offshore trust from inheritance tax permanently. 

In this article, we explore how increasing numbers of wealthy foreigners say they are leaving the UK in response to the abolition of the non-dom regime. The change has contributed to a relative decline in the UK’s attractiveness, according to over a dozen interviews with wealthy foreigners and their advisers. Other deterrents cited include Brexit, fiscal and political instability, and concerns around security. 

“Brexit happened and the Conservatives promised to make the UK like Singapore and instead they turned this place into Belarus,” said a billionaire businessman who has lived in London for 15 years and is now moving his tax residency to Abu Dhabi. “Security is now a major issue and another contributing factor to the tax reasons for why people are wanting to leave.” 

One French businessman summed up the dilemma facing the exchequer when he said: “Was the non-dom regime a fair system? No, it wasn’t. Was it efficient? Yes, it was.” 

While Starmer has sought to position Labour as the “party of wealth creation”, the non-dom changes mark one of several potential tax increases under a Labour government. 

The party sent shockwaves through the private equity industry when it pledged to raise £565mn a year by closing a “loophole” on the taxation of private equity managers’ profits on successful deals, known as carried interest.

But last week the UK’s private equity industry welcomed as “encouraging” Reeves’ suggestion that buyout executives who invest in their funds would continue to enjoy favourable tax treatment.

Is it a good idea to abolish the non-dom regime? Email me: [email protected]

Chart of the week

Column chart of First half performance of JPMorgan index of EM currencies (%)  showing Emerging market currencies suffer worst start to year since 2020

Emerging market currencies are on track for their worst first half of the year since 2020, pushed lower by an unexpectedly strong dollar and an unwind in a popular trading strategy across Latin American markets.

JPMorgan’s emerging markets foreign exchange index has fallen 4.4 per cent so far this year, a drop more than twice as large as the same period in the three previous years. The move has come as investors have torn up hopes of rapid US interest rate cuts in 2024 and nerves around weakening economies and expansive fiscal policies have pushed currencies in some major emerging markets lower.

“It’s the combination of a more resilient economy in the US and, on the emerging markets side, emerging markets like Chile, Hungary and Brazil have kept cutting rates,” said Luis Costa, global head of emerging markets strategy at Citigroup

“And let’s be honest the prospects for growth in EM are not amazing for this year and the next — there’s a continued contraction in global trade and it’s a very complicated year for elections,” he added.

Much of the recent weakness has come from the unwinding of so-called carry trades, where investors profit from differences in yields between currencies. The trade had been popular with emerging market investors earlier this year.

But in larger emerging markets in particular, these trades have run into trouble as elections made assets more volatile and the future path of local interest rates also became less clear.

Five unmissable stories this week

The unstoppable rise of Fortnox attracted short sellers. Last week the Swedish software group restated critical market share figures after the Financial Times challenged numbers it presented to investors at a capital markets day in May.

St James’s Place is reeling from a year of tumult, including management changes, regulatory intervention and changes to its network of advisers. FT Money takes a close look at what the firm’s clients think about the service they receive.

The board of Hargreaves Lansdown said it was willing to “recommend unanimously” a takeover offer from a consortium of private equity funds led by CVC Capital Partners that would value the UK’s largest investment site at £5.4bn. 

Elliott Management, the hedge fund founded by billionaire Paul Singer, has upended a $4bn debt restructuring at a business owned by Carlyle Group, in a stand-off illustrating the tensions high borrowing rates are unleashing at private equity portfolio companies.

HPS Investment Partners has raised one of the largest private credit funds on record as the firm debates a possible public listing or merger. The New York-based firm amassed $21.1bn for its flagship Specialty Loan Fund VI, its largest fundraising since the firm was founded in 2007.

And finally

Self-Portrait with Two Flowers in Her Raised Left Hand, 1907, oil on canvas © Jointly owned by the Museum of Modern Art and the Neue Galerie New York

Paula Modersohn-Becker is a major figure in the history of German Expressionism, acclaimed among other things for creating the first nude self-portraits known to have been made by a woman. She produced more than 700 paintings and over 1,000 drawings before her career was cut short at the young age of 31 because of a post-partum embolism. Paula Modersohn-Becker: Ich bin Ich / I Am Me at the Neue Galerie New York marks her first ever museum retrospective in the US.

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