Hello, everybody, and welcome to another edition of C&F talks. I'm delighted to have with me today, Asher Qureshi, who's a Partner at Fried Frank. Ash is going to be speaking at our Future of UK Capital Markets Regulation Summit, in London on the 11th of November. Welcome, Ash.

Thank you very much, very kind of you to have me.

Very good to have you with us today.

You recently wrote a very interesting article on whether the Listing Regime reforms will arrest the apparent decline in UK stock markets and restore the glory IPO days. Do you think they will?

Look, I think if I may, sir, the reforms are incredibly thoughtful and, in many ways, welcome. And I think every financial market should be looking constantly at ways to evolve in modern ways. My anxieties are twofold.

One is, in of themselves, I don't think they go far enough. And, you know, there are sort of a variety of areas we could point out to. They haven't really, you know, really addressed and completely eliminated the bifurcated nature of the UK listed market.

Because, you know, we continue to have obviously both the legacy companies remaining on transitional arrangements, but also, you know, a different segment for foreign companies listed abroad, which again, flirt with this concept of a secondary listing. And at the same time, and this may be for somebody who comes ultimately from an Amero background in terms of training, they haven't really fully addressed the issues around the sponsor regime and if it works or not. But I think, but in some ways, I think the issues are outside the remit of the type of reforms that these are.

And inherently, perhaps the FCA's. And we are looking at the need for broader reform. And I'm going to park the one issue that we can't talk about in terms of reforms is, are there enough viable candidates for a robust IPO market coming out of the UK financial ecosystem, which I'd love to be able to wave a magic wand and tell you what the solution is.

But, you know, even in my most, shall we say, hubris-y moments, I don't think I'm going to get to that one. But, you know, I do think what is still necessary is significant financial reform of the tax and other systems, which we just aren't seeing. You know, the UK equities, I said, was a great idea, but why aren't we looking at more comprehensive reform or return to forms of pension investment and dedication of pension funds to the UK public markets? You know, why is it that when you and I put our money in our sip, somebody takes that money and puts it all in America? And I think secondly, we need to look harder at tax and what kind of breaks we're going to give people.

The new capital gains regime, albeit necessary, is obviously not going to be great news for the market. But really, should we be giving the average Joe and correlated, because I do think it's unrealistic to expect a complete withdrawal, you know, and a complete free pass for capital gains for UK equities or UK listed debt instrument. But are we, should we be looking at an expansion of the benefits afforded to pension saving and long-term saving to incentivise people, either by bigger amounts up front being tax free or tax delayed, or greater sort of latitude on capital gains, coupled with, you know, limitations on the pension funds, etc.

And where these investments are, you know, invested, look, in theory and abstract, I think it's completely right, that I should be allowed to invest my pension wherever I so want, wherever I think I'm going to get the best advice. But on the other hand, there is a tax break involved. And you've got to look at what else you can do. And therefore, the more libertarian impulses I might have, are at war with what I think is best for this market.

Very interesting. There are a number of points that you raised there. Obviously, taxation is one and the tax break as being a facet of why people should look at where pension funds invest and why perhaps one might be able to tilt them towards a greater allocation to UK equities.

But do you think that in total, I may ask that your view of the budget a little bit last week, do you think that's a negative for the UK equity market, particularly for recent investors?

Look, I haven't spent enough time going through it with anything like the debt that would make it a truly informed response. But my gut, from what I've read and seen, yes.

Or if not a negative, a series of lost opportunities. And yes, you know, what I find strange or distressing, sir, is that we have all these people, both from, you know, from the political universe as well, sort of lauding the current round of changes that we've made, or we've seen. And I think they are to be lauded in many ways, because every initiative and every, as we discussed earlier, every modernisation is great.

But you know, people got to put their money where their mouths are, right? And I don't see the government doing that, or putting our money where their mouths are, as it were.

Absolutely. And particularly, we're going to achieve a growth strategy, which is the central aim of the government.

But of course, there is anticipated to be a major announcement around pension reform coming up fairly soon. At least that was trailed in the papers. But one other thing that you mentioned was, you know, that this, the supply side of high tech, high growth companies, as being a fundamental, that's required for a really healthy IPO market.

And interestingly enough, I was interviewing someone who runs an AI company about that very point recently. And that was what he was saying, that we need to find a better way to foster and grow such companies. Do you think it's just that? Or do you think that there's a major difference in the culture between the UK and the US market, or between UK investors and their understanding of technology and the understanding of technology amongst US investors? Or is it a conflation of the two?

I think it's a conflation of the two, sir, if I may.

I think that it's hard to criticise the UK or European institutions, educational or otherwise, and say that they're not generating the ideas, because the ideas are there. And you're finding so many UK pre-IPO, pre unicorn companies being snapped up by the Americans or the European investors, right? I think there's a complicated set of issues. I think fundraising, particularly private fundraising or interim fundraising in the UK is not as easy.

And the investor market isn't as evolved, nor are there as many sources of capital in the United States, which, you know, really, if I may, create a sort of very focused microcosm, or universe in places like Boston and Silicon Valley for the trajectory of some of these companies. And, you know, I'm including biotech, not just, you know, conventional sort of computer tech or high tech or the stuff that I claim to be a not know about, earlier on before I could get on this. So I think there's, there's that challenge, sir, of how do these companies in the interim raise money? Is there an investor base out there domestically? Or is that investor base up in the US, so it's better for me to travel? There's obviously some element of the mythology of American success.

I think that in overall, partly because you have more dedicated investing entities, and greater focus and greater success. They're the level of resource that they're willing to dedicate to understanding. And therefore, that for risk around these assets is greater.

And I also think, frankly, the cultural affect around compensation is different. I'm going to build up a really big company, and then I'm going to be hoisted by a bunch of investors who are making a lot of money, you're not going to get that, you know, the classic European and UK entrepreneur does not see the IPO as a rite of passage. Right.

Certainly some of the bars, you know, the 25%, initial public vote, etc. These reforms and other reforms have really dealt with over the last, you know, three years, sir, you'll know this better than I. But, you know, that rite of passage issue involves things like compensation, involves things like, you know, and so it's both more challenging for me to get to that point of being able to IPO my company, but then why would I IPO it to be expected to be torn down, or for me to be torn down. And I think that that's something, you know, is that's a more complicated cultural and political issue that's not going to be fixed overnight.

And there was a fascinating study of about the number of times that there had been significant resolutions and voting down of compensation proposals in UK AGMs. And, you know, it is an issue. We don't want to talk about it, but it still remains an issue.

And whether it's actually borne out by the facts, because, you know, I'm sure there's been some evolution there. The fact that people think about it as an issue is going to constrain their choices, because these decisions are, while we all love to say, you know, completely logical, they're also about sentiment and perception of fear. Right.

So, yes, I mean, I fully agree with all of that. I think if you're an entrepreneur going for an IPO, you put in huge numbers of seven-day weeks, working virtually 24 hours per day. And there has to be on offer a decent reward.

And you don't want to be torn apart, as you say. But the cultural issues and that point about targeted expertise and having the scale of markets so investors can have that targeted investing. These are things which can't really be easily changed by legislation or a change in regulation. It's going to take a lot more time, isn't it?

So, you know, whilst the reforms that we have in the UK are set out by the Capital Markets Industry Taskforce and what the regulator is doing, it doesn't sound, in your opinion, as though that's only going to take us a little step forward. Is that right?

I think that's right. I think the first thing that will turbocharge this is pension and tax reform, because, you know, give people additional incentives. Right. And you've got more money just being directed irrespective or money that's in pension pots and being put elsewhere being redirected.

So, I think that gives you an instant impetus. And look, there are lots of reasons why, you know, Brazil and Poland are not to be pointed out as being stellar examples. But, you know, they use those kind of tools to very significantly turbocharge their public markets.

Now, there's probably some long-term issues with the relationship between the private and the public market that, you know, also are going to redound to why equities and public debt aren't coming back as quickly as one wants, because, you know, we've talked about some of the cultural or societal or analytical hurdles, but there's also the rise of the private capital.

Now, I don't think that people have stopped doing IPOs because there's private capital. I think private capital has certainly played a decision tool in the way that, you know, private equity has chosen to pursue the narrative or the progression of some of their assets. But again, it's not an ultimate solution. It's a deferral trade. Right. You still got to get the money. You still got to get the equity and make a return to the public markets. Right.

But I think private capital, in my view, complicates the public markets, but doesn't obviate the public markets and shouldn't obviate the public markets, because it's ultimately not a endlessly recyclable and liquid system. It wouldn't be private if it were. Right.

Yeah, and that's true.

And maybe do you think the private markets, in a sense, step into the breach and help deal with a fading of the public markets in the sense of developing companies at a certain level of their transition and growth to the point where they are suitable for the public markets? Do you think that is a reflection of the public markets perhaps not working for smaller companies?

No, I don't think that happens. I don't think private capital is currently doing as much as we think it might be doing.

Not private capital, but the whole thing that we're colloquially referring to is private capital when people talk about it, which is really the credit fund. I don't think that they are, nor necessarily would many of them see their tools bridging 100 percent that transition from small and medium enterprise to mid-sized enterprise. I think they're interplaying very effectively with PE investors and other investors to create a different journey along that.

But you're already talking about a company or an enterprise that's attracted, you know, not a conventional institutional investor base, but a type of professional investor base that's then interacting with private capital. You know, yes, will they at some point grow more and more into others? I'm sure they will. Am I as well informed as I should be? No, I'm not.

So I, you know, some of this is speculation, and, you know, but I don't think that private capital has disintermediated the public equity markets.

Okay. Well, one final question, because I know we're probably running up against the time but there's a lot of concern, as you've seen, about the dilution of investors' rights and whether these reforms will dilute the protections that investors have typically had in the past. What's your view of that?

I think there's some tech, there's probably some overt perception of dilution. I mean, the bits of the reforms that I don't particularly like are the ones which seem to give people a pass on information and sort of seem to short circuit disclosure rules, though I think, again, that's not what they really do, because they rely on a robust ongoing disclosure regime. I'm not so sure that ours is as perfect on the ongoing in terms of not the rules, but in terms of the actual disclosure we generate in response to the rules.

Look, I think that it's nice, some of the historical sort of, oh my God, I've got these protections in the UK, were nice to have, but the reality is people vote with their feet. And secondly, it is hard to imagine a company that, you know, has a significant public shareholding actually doing something material without actually consulting or, you know, caucusing its lead shareholders. And, you know, some of the nostalgia that we have for these prior rules is based on a world that doesn't exist, right? It's the theory of the individual shareholder.

But the balance sheet of most, or the shareholding of most companies is large institutional shareholders. And they're not turning around to call you or I, or maybe they're calling you, sir, but they're not calling me to find out how the two pence that I've given them needs to be taken into account as they vote together with other things. In fact, you know, again, and this is a separate diatribe, if I may, the whole concept of corporate governance hasn't, to my mind, fully kept abreast of the fact that, you know, shareholders are increasingly institutional shareholders, that the economic incentive of an institutional shareholder is not 100% aligned with the people who are actually providing them with money.

Because, you know, the institutional shareholder gets often, or the fund manager gets judged on timeframes that are different from the ultimate investor’s timeframes. And, you know, they turn often disintermediate or devolve voting to a third party, who may be very august. But I'm not so sure has a lot of skin in the game. Right? So, you know, do I have a solution in my mind? No. But is it a problem in my view? Yes.

Very interesting. Absolutely fascinating, Ash. I mean, for our viewers, if you'd like to hear further discussion of these and related issues, please do come along to the summit, the Future of UK Capital Markets Regulation on the 11th of November in London. Further information on our website, www.cityandfinancial.com.

Ash, I very much look forward to seeing you at the event itself.

I look forward to it as well.

And thanks so much for sharing those thoughts today.

Not at all. Thank you.