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City executive Archie Norman blamed a lack of funding for British pension funds invested in British companies and a decline in corporate share options for the long-term slump in the London stock market.
Norman, who is chairman of M&S and also sits on the board of private equity firm Bridgepoint, told the Financial Times that there is “undeniable that the depth of funds backing domestic shares has been significantly reduced” due to the sharp decline in UK pensions investing in equities.
“Most of the big corporate pension funds are invested in low-risk, low-return environments,” he said. “If they were invested in index trackers or private assets, they could eliminate a lot of the pension deficit and create a pool of capital that could be invested in UK institutional investors.”
He added: “I sit on the board of a private equity firm that invests heavily in European companies, but our money comes from large corporations. [international] Public sector pension funds and endowment funds.
“These are invested for long-term gains, creating deep pools of capital, vibrant stock markets and growth in private enterprise – something that is not happening in the UK.”
He also pointed to the decline of corporate stock options: “If you look back 30 years, everybody had stock options. The typical form of compensation for executives back then was a salary, bonus and stock options.”
His comments came as the London Stock Exchange has suffered a shortage of company listings in recent years as companies have chosen New York in search of higher valuations and deeper capital markets.
But there have been signs of a revival of initial public offerings in recent weeks, with several companies, including microcomputer maker Raspberry Pi, planning to list on the London Stock Exchange.
The pension capital shortfall stems from a 2000 accounting change that caused defined-benefit pension plans to shift from stocks to bonds to match their liabilities (payments to employees).
As a result, pension funds and insurance companies have slashed their stock holdings from half to as little as 4% of their portfolios over the past two decades, according to consulting firm Ondra.
Mr Norman, the former Conservative MP, added that automatically enrolling employees in company pensions was a missed opportunity to funnel savings into domestic stocks.
“At the moment, with auto-enrolment in place, everyone is signed up to a pension scheme but most people don’t know what it’s invested in. We’ve done this at a time when there is a fantastic opportunity to tell people that your savings are being invested in British industry.”
Norman added that around 70,000 colleagues at Asda, where he was previously CEO and chairman, including cashiers and store cleaners, had share options and become shareholders.
“We’ve now taxed share options and made accounting untenable for companies. [making them less popular]”Wouldn’t it be a good idea to have more employees own shares in big British companies?”
