The report emphasises the need for robust support across the entire growth lifecycle of companies, from start-up stages through to public markets. Currently, significant funding gaps exist, particularly for high-growth companies in sectors like science and technology.
In a bold move that could reshape corporate finance, a new report is calling on UK CFOs to consider tokenising their company shares and adopt a range of innovative strategies to revitalise the UK’s capital markets. These recommendations, part of a comprehensive study on UK capital markets by UK Finance, aim to make traditionally illiquid assets more accessible to a broader range of investors and address the declining number of companies choosing to list on UK public markets.
The report, titled “UK capital markets: the growth engine,” suggests that tokenisation could play a crucial role across various stages of a company’s growth. By leveraging this technology, CFOs could potentially open up investment opportunities in start-ups, scale-ups, and other unlisted equities to a wider pool of investors, including retail investors.
“Tokenisation can help make otherwise low-liquidity assets available to a wider pool of investors, including in low-value tranches. This technology could, in time, provide an opportunity to make shares in start-ups, scale-ups and other unlisted equity available to a wider pool of investors, including retail investors,” the report says.
This provocative suggestion comes as part of a broader push to revitalise UK capital markets. The report argues that by embracing innovative financial technologies, CFOs can help bridge the gap between private and public markets, potentially easing the transition for companies considering an IPO.
The tokenisation recommendation is just one of several forward-thinking proposals in the report. It also calls for a review of early-stage investment supports to widen their scope and smooth out funding “cliff edges” for growing companies. This is particularly relevant for CFOs of high-growth companies who often face challenges in securing consistent funding as they scale.
“The UK’s capital markets are where the UK’s economic future is financed. We need to ensure that they remain dynamic and accessible to companies at all stages of growth,” said Conor Lawlor, Managing Director of Capital Markets & Wholesale Policy at UK Finance.
The report highlights a concerning trend in UK capital markets: “The number of domestic companies using public markets in the UK has fallen by a third since 2010. The fall in the number of international companies has been even sharper.” This decline underscores the urgency for CFOs to explore new strategies for accessing capital and consider alternative routes to public markets.
One such alternative proposed in the report is the concept of an intermittent trading venue. The report mentions “the Private Intermittent Securities and Capital Exchange System (PISCES) concept proposed by the UK government which would create a unique hybrid market in which private company shares would be available for trading at fixed intervals throughout the year (e.g. monthly), rather than permanently.” This could provide CFOs with a middle ground between private and fully public markets, allowing for greater liquidity without the full regulatory burden of a traditional IPO.
The study also encourages CFOs to consider expanding Enterprise Management Incentives (EMIs) to give all staff a stake in company growth. This approach could help align employee interests with company success and potentially boost productivity and retention. For CFOs, this represents an opportunity to use equity as a tool for talent attraction and retention, particularly in competitive sectors.
Another key area of focus for CFOs should be the changing landscape of institutional investment. The report notes a significant shift in UK pension fund allocations: “UK pension funds have decreased exposures to equity markets in general and from UK company equity in particular.” This trend presents both challenges and opportunities for CFOs. On one hand, it may mean a reduced pool of domestic institutional investors for public listings. On the other, it opens up opportunities to engage with alternative sources of capital, such as private equity or overseas investors.
The report also addresses the regulatory environment, calling for “ongoing review of admission, disclosure and corporate governance requirements to ensure they are proportionate for companies accessing public markets for the first time.” For CFOs considering taking their companies public, this potential streamlining of regulatory requirements could significantly reduce the costs and complexities associated with IPOs.
Furthermore, the study highlights the importance of retail investor participation in capital markets. It notes that “in the 1960s, more than half of the UK stock market was owned directly by UK individuals – today that number is closer to 12%.” CFOs are encouraged to consider strategies to engage retail investors, not just for the potential capital they represent, but also for the broader societal benefits of widespread share ownership.
The report also touches on the role of technology in improving market efficiency. It recommends “implementing proposals to improve market transparency by making available real-time pricing information, as far as technically possible, for both bonds and equities.” For CFOs, this increased transparency could lead to more efficient pricing and potentially lower costs of capital.
As UK companies grapple with evolving market conditions and technological advancements, this report provides a roadmap for CFOs to navigate the changing landscape. By embracing innovations like tokenisation, exploring new approaches to fundraising and market admission, and considering the role of retail investors, UK CFOs could play a pivotal role in revitalising the country’s capital markets and ensuring their companies remain competitive on the global stage.
The report concludes by urging policymakers, regulatory authorities, and industry leaders to work together in assessing and improving the UK’s “growth escalator” at each stage. As it states, “If the UK gets this right, a company pursuing growth outside of the UK should be a choice and not a necessity.”
As the UK seeks to maintain its position as a leading financial centre, the implementation of these recommendations could prove crucial in shaping the future of corporate finance and capital markets in the country. For CFOs, staying ahead of these trends and actively engaging with new opportunities could be key to securing their companies’ financial futures in an increasingly complex and competitive global marketplace.