UK stock market revival plan will struggle for success

Significance

The United Kingdom, Europe’s longtime leader in raising private equity (PE) and venture capital (VC), has lost ground to rivals. Hunt's proposals aim to shift pension fund investment towards unlisted firms or PE, and to promote initial public offerings (IPOs) as a way of these funds recovering their capital.

Impacts

• UK promotion of IPOs could reverse a recent PE preference for longer-established firms, shifting PE back towards venture capital.
• UK public-sector pension funds are encouraged to shift towards unlisted equities, which promise higher returns but also higher risks.
• The US stock market is doing better than Europe and especially the UK at gaining and retaining public listings; this will be hard to stop.
• Europe’s stock market shrinkage relative to the US leaves European firms, especially UK firms, disadvantaged in raising finance to expand.
• Shrinking stock markets is global -- German and US markets have also shrunk in recent decades; the UK fall has been fastest and steadiest.