Risk-taking is the key to reinvigorating London’s equity markets
So, structural weakness in London or the unique circumstances of an emerging market family business? That’s the question on many lips after WE Soda bailed out of its London float last week.
The chief exec is (unsurprisingly) in the former camp, suggesting that institutional investors are somehow failing to step up in the capital’s battle for big-ticket flotations. Institutional investors (unsurprisingly) suggest the latter.
Before getting to that thorny question, it’s worth looking at whether it particularly matters that WE Soda has pulled out of what would have been the capital’s biggest float this year – and indeed, whether equity markets at large matter.
After all, even the London Stock Exchange’s bottom line is no longer reliant on headline-grabbing IPOs; it is more of a data company than an exchange. Could London survive without being a global equity markets destination? It could. Would it be a poorer place, in both senses, for it?
The answer is unequivocally yes, and not just for the brokers and bookrunners who rely on such things. The public markets bring public, media and investor scrutiny, and sunlight remains the most effective way to ensure businesses are run in the interests of their shareholders.
How then to reinvigorate them? Goodness knows there has been enough verbiage devoted to the topic, not least by a gamut of government-backed reviews. Most of those weighty – and worthy – tomes now gather dust on the Treasury’s shelves. Reports yesterday suggested regulators remain sceptical about their worth.
We share no such concerns. To implement some of the suggested reforms would require managed risk; a fact that the City would be comfortable with, but regulators and government seem almost allergic to.
On both an individual and an institutional level, risk-taking is all too often considered a negative; a focus not on what could go right if a change is made, but what’s the worst that could go wrong.
Britain has a timidity problem, but that’s not the City’s fault.