The Boardroom Path

[00:00:03] Ralph Grayson: Welcome to The Boardroom Path by Sainty Hird & Partners. I'm your host, Ralph Grayson, a partner in the board practice. In this series, we'll offer practical steps and useful perspectives for aspiring and newly appointed NEDs. Throughout its 30 year history, Sainty Hird has recruited senior board members across the City, Industry, the Public Sector and NGOs.

We're now also evaluating those boards, as well as coaching and mentoring those seeking to transition from an executive career into the boardroom. So we'll be speaking to some leading figures in the board advisory and NED world. Specifically, we'll seek their counsel about how and where to spend time and energy to make an effective transition into the boardroom. The goal is to equip recent and aspiring NEDs with tips, tactics and strategies to be most effective and build a successful career as a board director. In the process, we aim to help you to think more about who you are, how you operate and how you can make this work in the boardroom.

Today I'm in the City, above Liverpool Street Station, in the offices of Peel Hunt. My guest today is Charles Hall, who has led Peel Hunt's equity research since 2008, establishing a top tier equity research operation that spans over 400 UK small and mid cap stocks across 17 sectors. His leadership is rooted in Peel Hunt's own board values, encouraging greatness, empowering each other, demanding excellence, and doing what's right, drives a collaborative and high performing culture.

Widely recognised for his critical insights, Charlie has become a prominent voice in UK capital markets discussions, warning of the erosion of public listings, criticising government over reliance on private capital and calling on pension funds to uphold their civic investment responsibilities. His advocacy extends through frequent media appearances, thought leadership contributions, and testimony to Parliament aligned with his firm's reform agenda.

A leading voice in the revitalisation of UK capital markets, Charlie is frequently sought out for his incisive analysis and bold commentary. Most recently, Charlie warned that the London Stock Exchange requires urgent support, citing a dearth of IPOs and a wave of takeover bids, particularly in the small and mid-cap segments of the market. He again highlighted the necessity for pension reform, tax incentives, and a national wealth fund, which we will come to later. Charlie good morning.

[00:02:50] Charles Hall: Good morning, Ralph, and what an introduction.

[00:02:52] Ralph Grayson: Oh, well, no pressure.

Perhaps we can start with a quick walk through your career history and your leadership role today at Peel Hunt.

[00:03:01] Charles Hall: Well, I started at Cazenove as a graduate trainee, so very much, at the bottom of the pile. I actually started in the library. Who would've thought that all these years agothat there would've been libraries, and that was an important role in an investment bank. But what it really did was give a fabulous insight into the mechanics of the leading stockbroker of its day. We got to know the whole of the business and how it operated and why it was such a class business, and it really taught me some core principles of putting clients first, staying really close to your clients, and really importantly, providing robust challenge. Because you know, if you're making fluffy platitudes to chief execs, that's all very nice and it massages their egos, but actually what they're paying for is advice and that is really central to any long-term relationship. And it really did teach me that having a long-term view is fundamental to be successful in the City. The City's often criticised for being very short-term focused. But I've had the pleasure of working in businesses that have taken a long-term view, allow people to grow within them and I had 10 years at Cazenove before going on to Panmure Gordon, and that was really a focus on smaller midcap, and then to come to Peel Hunt as said in 2008 with a remit to grow the best research product for UK companies. You can't do that overnight. It takesa long time period to gather the right people together and to enable us to have a broad coverage across the entire market. What was really helpful was that the management of the business recognised that research is absolutely central to the offer to a corporate client, because if you have good quality research, that is one of the key things they're looking for, and it also provides the analysis and intellectual robustness to be able to really understand the mechanics of the company and help them to navigate what's going on in capital markets.

[00:05:03] Ralph Grayson: I was going to come to this later, but let's go straight to it now.

As a head of research who's built a career analysing companies, how would you advise boards to think about engagement with their investors?

[00:05:13] Charles Hall: I think it's often thought that investors are difficult to work with or challenging, and you typically only see them when times are tough. But actually what we find is that investors are incredibly supportive and this is one of sort of the misnomers, the difference between private and public markets, there's this sort of feeling that you can take different views in private markets. But, in essence, in the public markets if businesses are going fine and you are engaging with them well, the investors will always be there for you. They'll provide you with capital, they'll provide you with advice, they'll provide you with challenge, of course. But that often is a very helpful process in making you think about the business. So I don't think anyone should be put off being listed by thinking that the public investors are going to be harder to deal with than private investors.

[00:06:04] Ralph Grayson: I do think the boards sometimes underestimate just how smart the average analyst is. Particularly at Peel Hunt who really know their onions.

[00:06:11] Charles Hall: You are saying absolutely the right thing there.

[00:06:13] Ralph Grayson: Well. I just think this, they have such great insights into strategy, into strategic positioning. I think it's something that board members really should think about engaging, not just to maximise the share price, but actually getting insights into sectors, into competitors, into disruptive technology.

Any particular views on that?

[00:06:32] Charles Hall: It's an incredibly privileged positioned to be an analyst. You know, you have unbelievable access to management. You know, even as a very young analyst, I was challenging chief execs of FTSE 100 companies. Seems bizarre, looking back on it. But the ability to ask company managements annoying questions is extraordinary. But also you have that ability to look across the broad spectrum of businesses, not just public companies, but private companies in the UK, overseas, you are able to find information out on all of these businesses. And so insight to how the market is operating, what investors are looking for, what the challenges might be over the next few years, there's a deep pool of knowledge that companies can tap into.

Now, some analysts may be introspective, and not very forthcoming with some of that knowledge. At Peel Hunt, we believe in having analysts that want to engage across the spectrum. We see them as being effectively corporate advisors, but also people who are able to sell an idea to an investor that's fundamentally important. Your first team is your internal team. So you speak to your sales team or distribution, as we call it, in the City, and that amplifies your voice. One of the things that's really changed over my time in the City is that 10, 20 years ago, we used to spend most of our time talking to UK investors because it was UK pension funds, UK Life funds, UK asset managers, wealth managers owned the UK market.

Over the last 10, 20 years, that has changed dramatically. Now we have a large number of international investors that are looking at both small caps and large caps, and so the number of people an analyst can speak to has a snowballed enormously over that period, and that means that you need to have a really strong sales or distribution team to amplify your voice to a global audience.

And so we talk about ourselves as being a national champion. Now that sounds sort of very grand, but we genuinely believe it. We are being a national champion for our UK companies, taking them to a global investor base.

[00:08:42] Ralph Grayson: So just before we leave Peel Hunt itself, you've been through your own IPO while you've been here. So firstly, what other advice and services and products do Peel Hunt offer corporates beyond raising capital? And how's your experience of now being a public company affected perhaps the way you think about boards and PLCs?

[00:09:05] Charles Hall: Well, maybe actually I'll start, a little bit earlier in the journey of Peel Hunt. So we went through an MBO in 2010, and so management and staff bought the business. Management and staff owned 75%, so I was one of the team that drove that MBO and that was a significant change in the culture of the business.

That gave us the opportunity to create a long-term process and enable anyone within Peel Hunt to be part of the equity journey. And I think that is a really compelling proposition. Now, our business is a people business, and it's really important that our teams are aligned with the performance of the company. So having that equity culture has been central to how we have thought about the company.

So that took place in 2010. As we grew, we effectively outgrew the structure, and so it became a very obvious thing to do an IPO, which we did in 2021. I think we were well prepared for it because we had already got the structures in place, we got the board positions in place, so we didn't have to take a significant change in approach to life as a public company compared to a private company. But nonetheless, it is disruptive. There's no doubt about it. There's a lot of heavy lifting that goes through an IPO. So I think you need to be really well prepared. Of course, we also knew a lot of the investor base, so that was an advantage we had.

But in terms of life as a public company compared to a private company, there are additional reporting requirements, obviously, and there are additional pressures. But there are also some considerable benefits and I think the ability to have constant challenge on how your business is operating, to be able to have to focus on the areas that are performing well, the areas that are performing less well, address things head on that comes with public life.

What you also get is a profile and that profile has undoubtedly been very beneficial to our business and there's no doubt that we now have a higher profile in the national press and with non-execs and executives that enables us to increase our long-term performance.

[00:11:18] Ralph Grayson: Fascinating.

Let's just start with the global macro outlook then. Before we turn to the UK, today, just as Starmer, our Prime Minister, has announced a whole series of Treasury changes, Autumn statement coming up, budgets, how are you thinking about growth and strategy in the UK as you advise boards?

[00:11:44] Charles Hall: I think it's very easy to get too fixated by your current issues or your current crisis, and you know, the reality is the UK has been through challenging times for the last sort of, well, ever since 2008. And you know we went into that with over geared banks. We then had austerity, we kicked off some of the populist politics with the Scottish independence vote. Then we had Brexit that caused obviously a lot of tribulation in how the UK was perceived. COVID was particularly challenging period for us. And then more recently, inflation has hit the UK harder than a lot of other economies. So you'd have thought with all that, oh my goodness, the UK must have been a basket case over that period.

The reality is GDP growth over that period was 1.6% per annum, and if you'd said that, you'd go, well, that's not disastrous. That's absolutely fine. So I think it's really important to realise that economies are much more resilient. And some of the things that we think are really negative when you look back at them, actually they aren't that bad. And I think you can say the same today. You know, lots of people talk about the UK as being slow growth. Actually, we're one of the fastest, if not the fastest, in the G7 at the moment. You can actually paint a really positive picture of where the UK sits now in a changed global environment where, you know, you've got a situation with tariffs and the UK's come out relatively well from that.

We're getting closer to Europe, so we've got to the opportunity to renew ties with Continental Europe. We're getting closer to India. Closer to Japan. So we actually have a lot of opportunities. One of the things that we always sort of downplay is that we have so many natural advantages. Now, we have rule of law that's incredibly powerful. We have the English language, that's massive. We have a really helpful time zone in the sort of the middle of the world's outer reaches and we have a very innovative culture. Now, there are some challenges in terms of how we make sure that we benefit from all these things, but we start with a really good deck of hands.

[00:13:56] Ralph Grayson: So on that upbeat message, the UK continues to produce world-class businesses.

Our public markets, though, seem to be failing to hold onto them. We're seeing an accelerating exodus of listed companies, a slim IPO pipeline, and overseas acquirers circling for bargains. So let's just look at the facts. As we enter Q4, the IPO market hasn't just slowed, it has virtually stopped and I think I saw on Bloomberg this morning, the US has had 83 IPOs in the year.

So we seem to have a deeper issue, a sustained long-term outflow of capital from UK equities. What's your take on this? Are comments about a perceived change of mood and IPO jungle drums now beating for real?

[00:14:46] Charles Hall: So let's unpack a number of those pieces. The reality is, as you say, we have seen a sustained period where UK markets have been challenged. Now, that's not alone to the UK. The growth in the US and the magnificent seven is sucking in a lot of capital and so other countries are facing the same issues that we are, and, you know, a bastion of success like Singapore is taking concerted action to improve their capital markets. So we're not alone in this, but we have to recognise that the world is changing.

A couple of key themes that have appeared over the last 10 to 20 years, globalisation of capital, that used to be that everyone invested domestically. Now increasingly they invest globally. That brings challenges. The growth in passive investment, 20 years ago it was tiny. Now it is becoming a core part of the investment market. Passive investment typically goes into the largest companies, and of course the largest companies are in the States, so that means that they attract a lot of the capital that is going into passive funds.

So these are things that are structural and we can't ignore them. What we have to recognise is that we need tomake changes to be able to address these. Thinking that everything will be fine just by doing nothing is not a good answer. Now, it comes back to what are capital markets for? What is the equity markets purpose?And if you believe that they are central to the success of the economy, then it should be very obvious that we need to make sure that we keep capital at home and that we create the right environment for companies to list. Keeping capital at home is a really important area and this is something that government can absolutely impact by creating incentives to invest in the UK. And if we don't do that, we will continue to see companies leave.

In terms of creating the right market for listings. I think the government has realised that this is something that needs to be addressed and, you know, we had the recent announcement of the Listings Task Force. That is being taken seriously, where they're looking at a lot of different initiatives in order to encourage companies to list and stay in the UK.

So I think the good news is, this is now a core debate amongst policy makers. What we need to see is action to actually come up with mechanisms to keep capital at home, to encourage companies to list in the UK, and we've had this rather sort of bizarre thing where it's sort of been seen as good to be private.

Now, that doesn't make any sense. You look at the States. Pretty, well, every successful company in the US aspires to be listed on NASDAQ or the New York Stock Exchange. The biggest companies in the world are all listed. So private markets have an absolute role, but as businesses get bigger, they effectively outgrow private markets.

And if we don't create a structure where entrepreneurs and management teams feel a privilege to be listed in the UK, then it's no surprise when they're going to go and list in the States. So we've got to think about this in a very rounded basis to make sure that we have all the right attributes to encourage companies to list and stay in the UK.

[00:18:14] Ralph Grayson: So let's just peel back that onion a little further. You recently made comment on a journalist in the FT who was effectively saying, equity markets don't matter too much. It doesn't matter where you'd list. If you can list in the US rather than the UK, why don't you? If you can stay private for longer, why don't you?

Do you want to say just a little bit about why you think the UK equity market mattersand why board members should care, and then perhaps answer maybe a little provocative charge, whether it's right that you should still be advising companies to IPO at all and indeed advise them to stay public?

[00:18:53] Charles Hall: I think the first point is that public markets are a public good, and that's something I fundamentally believe. I understand why some commentators don't see it because they don't feel it inherently. But let me explain why I think it is a public good.

First of all, public companies pay more tax. In essence, one of the attractions of going private is that you can load a company up with debt and reduce your tax charge. You only need to look at Tesco's in comparison to Asda and Morrisons, which company pays a load of corporation tax, which companies don't. So government absolutely should care purely from a tax raising point of view. The listed companies also pay a lot of dividends. Dividends are taxed, and so that is another source of significant revenue.

Another point at the moment, stamp duty stamp duty is something I'd like to see addressed. But it generates quite a lot of tax. So if we lost one of our big companies, that is hundreds of millions of pounds that you lose from stamp duty on day one. You also lose all the dividend income. You also lose potentially a lot of corporation tax.

So losing our big companies is fundamentally negative for the UK economy. That's before you start thinking about potentially a brain drain, a loss of high income jobs, the change in the centre of decision making. Now, if you have a centre of decision making in the UK, you're probably more likely to invest in the UK. If it moves to the US, you're probably more likely to invest in the US. So everyone who cares about the UK should care about the UK public markets because this provides the tax revenue for our essential public services.

But it goes a lot further than that. Public companies are constantly challenged. They're challenged by journalists. They're challenged by pesky analysts like me. Now we are holding them to account on a daily basis. We are analysing their results. We're analysing their behavior. We're analysing the chief exec's statements. So, they are continually working in the glare of publicity. That creates a high degree of honesty in terms of how they run their business and visibility to all stakeholders.

Change that to the private market. Now, there's some very good private companies who provide lots of information about their business, but there are a lot of private companies that provide very little information. I would just use one example. Would Thames Water's issues have happened if they had been a public company? It would never have been levered as much as it did. It would never have got itself into the cashflow problems that it did. You would've had analysts writing about it, you'd have had journalists writing about it. Now obviously there's a huge amount of interest in it now, but this was happening for years without seeing a challenge coming through. That is one of the negatives of private markets.

So I think that public markets are a clear force for good, that if we encourage more companies to be listed that is beneficial for the UK economy. Then you can come on to the fact that public markets provide permanent capital. When you raise money, you never have to give it back. You don't have to refinance it. You don't have to be put up for sale. You don't have to pay a coupon on it. Obviously you can pay a dividend, but you don't have to pay it. So that money is there permanently. That gives you the ability to take a very long-term view.

If you're operating in private markets. The reality is, you know that you are on a cycle, and though it's becoming an extended cycle, you are constantly being put up for sale. That is not the case in public markets and probably one of the greatest examples of how important public markets are was during COVID. The amount of fundraisers that companies undertook in the UK was unprecedented. Institutional investors at the time of the greatest need for these companies provided permanent capital. That meant that these companies that were listed were not taking government money anywhere near as much as private companies were.

[00:23:24] Ralph Grayson: I think there's a lot to get into there in terms of transparency, liquidity; a lot of commentators have been saying that private capital markets will be the next crisis. Maybe that's something for a conversation with the regulator rather than today. This debate about private versus public as if they're in conflict seems perverse to me.

The London Stock Exchange is I think, trying to transition that, by having this kind of gray market. Pisces, maybe some of our listeners might not be familiar with it. But perhaps you might just want to talk about how you see the role of Pisces, and how would you advise a board to think about whether it should be a participant in that market and whether you think that's going to affect the timing and relevance of IPOing.Alasdair Haynes at Aquis has been quite vocal in saying anything that just slows down the process of going public for all the reasons you've just talked about is a bad thing. Therefore, Pisces is a bad thing. Any perspective on that?

[00:24:28] Charles Hall: So I think, let's take the private public debate and, you know, the growth of private has been a challenge for public markets, because obviously there's been a lot of capital flowing into private and, you know, there's a finite pool of capital. So if you take capital out to public markets and put it into private, that inevitably creates challenge.

But in essence, they are mutually dependent. Private equity wants to be able to buy companies that are on the market. Some of those companies are better suited to being privately run. Now, it may be that they need to go through fundamental changes in their business model. They may be going through a challenging time and maybe they're better off doing some of that activity outside the glare of public markets. So there are definitely situations where private has a very clear role.

But what is really important is that private markets need public markets now. There needs to be an ultimate opportunity for public to effectively list companies that have been private for some time. And so if you speak to any private equity financier, you know, they are very keen that public markets reenergise and reopen and not least because they provide a very clear valuation comparator.

So, you know, public markets are open every day. You can look at the price, you can work out a valuation. Private markets tend to value only irregularly and obviously they don't have liquidity. So it's really important for private markets to have effective public markets.

So Pisces is a really interesting innovation. The UK is a world leader on putting this structure in place, where effectively you're creating a new type of crossover market of effectively staying private, but having the ability to have outside shareholders by existing shares. So it's an interesting development, but it's early days and we'll need to see what companies take advantage of it.

I think it's really helpful that the FCA have recognized that it's important to keep a light touch regulatory background to this so that you don't get tied up in rules and regulations. But what we'll need to see is hopefully good quality companies use it and some of those may see is it is a stepping stone to the public markets.

I think it's too early to say, is it going to be a challenge to public markets? I think at the moment it doesn't feel like that. It may be that actually it attracts some companies to come to the UK that otherwise wouldn't have done. But overall, I think one of the key things for me is that this is really showing that the UK is willing to be innovative.

The FCA has changed fundamentally over the last couple of years. You know, the growth and competitiveness agenda has come in and the FCA has embraced it. And I can see that happening in a number of different areas. The conversations we have with the FCA are fundamentally different to what they previously were, which was much more about effectively being our policeman. Now it's about how do we make an environment in which businesses can thrive and the London capital markets can thrive.

So I think that's symptomatic of a really important change in culture in the UK. I think the government has to be applauded, both, the Conservative government and the Labor government, to recognising that the capital markets are central and, you know, one of the key things is that financial markets has been seen as one of the eight core industrial sectors and that has really sort of changed the mindset.

You know, there was a period where capital markets and financial markets were seen as a problem. You know, post 2008 it was all seen about, you know, reigning in capital markets. Now the reality is the financial markets in the UK are incredibly important for the whole UK economy and it's one of our world leading services that we should be taking advantage of and so it's really encouraging to see governments of all persuasions recognising that supporting financial services helps the UK economy.

[00:28:50] Ralph Grayson: So let's just look at the UK public market in a bit more detail. There's been a lot of criticism it's now an old economy, even dinosaur market. But the UK does remain a world leader in tech, especially Life Sciences, FinTech, AI.

Charlie, can you just give us a bit of a feel here for how big these sectors are in the UK? How you think we compete against our international competitors and what the funding environment is like in the UK? We're the third largest tech sector on the planet,so how do we leverage that?

[00:29:22] Charles Hall: I think it's really important to say that the commentary that the UK was a dinosaur market was ill founded in the first place. You know, that it was a sort of lazy description to try and justify why the UK was underperforming other markets and obviously there is a difference in makeup of our index compared to other indices. So that has a natural impact on how you perform at any one period in time.

But the reality is we have some fantastic companies, world leading companies, whether they're healthcare, whether they're information services,our banks is a very strong banking system, so we have some really strong businesses throughout the market cap ranges in the UK.

What we haven't got though, is the mega companies that the US has. But then nor does other countries. So, you know, we're in the same boat as a lot of other countries around the world. So we mustn't beat ourselves up by about the makeup of the FTSE 100. And of course, the reality is that over the last year or so, it's been outperforming most other indices. So I think hopefully we've put that to bed at that particular issue.

But what you are also rightly pointing out is that we have some of the most innovative technology companies coming through in the UK. There's a whole new generation of FinTechs. A number of these businesses are going to be world leaders and there's no doubt that we can have trillion dollar market cap companies in the UK. So we can challenge the view that says that the UK doesn't have the innovative capability to create companies of scale.

What we have to do though is ensure that we keep them in the UK and it was a deep disappointment, for instance, that ARM went to list in the States. It's very clear why in terms of its ownership structure and the view at the time about the UK market. But if ARM had listed in the UK, we'd be talking about the UK has having one of the leading technology companies worldwide and just with one company, I think the atmosphere would've changed. We can have that with the next generation of FinTech companies that are coming through and some of these businesses can become effectively cheerleaders for the UK.

Going back to this point about the importance of public equities and why they're public good. There is enormous soft power in having leading companies based in your country. Just think what the soft power of having Microsoft or NVIDIA is for the US. You have global leaders that can have access to any President or Prime Minister around the world. Now we have that with some of our companies. But if we can get another generation of companies coming through that are seen as some of the most innovative, successful businesses. That gives a huge applaud it to the UK and attracts inward investment.

[00:32:25] Ralph Grayson: Other podcasts are available.Your own I listened to an interview you did with Philip Belamant, founder of Zilch, which is one of our most exciting FinTechs, potential unicorns here. I'd encourage any board members who are thinking, how do I advise my founder or my CEO on where to list, how to list, when to list, that was a great recording and people will get some great insights from listening to that.But more generally, in the last 12 months, the UK has raised more capital, public and private, in FinTech than all of Europe combined. Which to me raises the question, do we need a European growth market? Do we need a UK NASDAQ? What's your take on SIX acquiring Aquis? What's your take on how AIM is perhaps trying to reinvent itself? To go back to the relevance that it had 25, 30 years ago, whenever it was founded, as a growth exchange?

[00:33:19] Charles Hall: I think one point is that there are going to be consolidation among exchanges in years to come. I'm sure we will see pan-European exchanges emerging that become more powerful and either we have to be part of that, or we have to turbocharge our own capital markets. What we can't allow ourselves to do is to feel it's all fine, let them get on with it and our market will thrive regardless. Because I think the reality is capital will go to where the greatest liquidity is, the greatest valuation is, where the investors are spending their time. So we have to take these challenges head on.

Now, AIM has been an incredibly successful market and we mustn't forget that during the current challenges. Other countries would die for a growth market like we have in AIM. So it has been immensely successful. The reality is that it needs a recharge and a reset and I think the LSE and the government recognise this. So you know that effectively everything is on the table to look at the name, the level of regulation, tax incentives. So lots of things are being looked at and what we need to see is a package that makes AIM the best growth market in the world and I say in the world because the US does not have a successful small cap market. The scale of those big companies in the US is effectively sucking the lifeblood out of the smaller markets companies. We can have the best growth market in the world and we can have one which actually attracts some of the best companies from around the world. So it doesn't just have to be our UK companies, it can be international companies as well.

So we need concerted action. I think there are going to be a number of policy changes. What I think we also need to do is address how we ensure that entrepreneurs want to list in the UK and stay in the UK. And this comes back to the fact, you know, the big companies in the US, most of them arestill run by the same entrepreneur that founded them. They're not sort of thinking, oh, I need to sell to private equity, or I need to go and relist somewhere else. No, they have made a concerted decision that they are happy to be a public company and happy to be an entrepreneur, still running that public company. So there's absolutely no reason why we can't create the same culture. But I think what we have to do is recognise the lure of the States is really powerful.

Particularly for a lot of these private companies, where one of the issues that we've had in the UK is a lack of capital for scale up.

We're very good at venture. Some terrific decisions have been taken over the last decade. You know, establishing the British Business Bank, which Vince Cable did back in 2014, I think it was. That has been a resounding success. They provide 20% of all capital to venture in the UK. So government can take proactive action to make a really material change.

What we don't have though is the scale up capital, and this is where the pension funds come in because the DB pension schemes have obviously gone very risk averse and we all understand that. The DC pension schemes typically invest in global equities and the biggest companies and you can look at the shareholdings of some of our biggest DC pension schemes. Nest is all available and you can see that the big US companies dominate their portfolios. So effectively we are taking money from people who are saving through their pension scheme, you are also getting the corporate adding to that pot and you're getting the government adding to that pot, and then we're putting that money largely into the US. That makes no sense to me, you know, that we are effectively taking taxpayers money and investing overseas.

I'm really pleased to see the changes that are coming through the Mansion House Accord, the Pensions Review, that is saying we need to be investing more in the UK and this is fundamental. There should not be a debate about the importance of having pension fund money, our pension fund money, investing in the UK. Because the reality is all of the people who are saving in those pension schemes are going to be retiring in the UK. They care fundamentally, or they should care, how the UK economy performs and how we generate the tax to pay their pensions in 10, 20, 30 years time.

If you are in the States, people have their 401Ks. The vast majority of those get put into US equities. So these things are totally interlinked. So coming back to the Scale Up capital, what we have to have is UK money backing UK companies. What we currently have is that our most innovative UK companies typically will be sourcing their capital as they grow overseas, and a lot of that from the US. What then happens is that a lot of those US funds will understandably think that listing the company in the US is a good thing. You know, why wouldn't they? So actually, it's really important that we start to make sure that we have capital going into these businesses from the UK through their growth journey, and then they will feel that listing in the UK makes perfect sense.

So that's sort of one of the sort of cultural changes that we need to have. Things like the British Business Bank can be central to that. Pension funds can be central to that. But then we need to make sure that our UK capital markets, our equity capital markets, can then support these companies and help them continue to grow. And then we need to have a sense of pride that we are ensuring that entrepreneurs stay in the UK.

One of the things I'd love the government to look at is thinking about how to make sure that entrepreneurs who are very successful keep their money in the UK. You know, we find it pretty depressing when you go and help a management team, effectively crystallise some of the wealth they've created and then they go and live in Monaco or Italy or somewhere else and they take all their taxpayers money with them. Now that just makes no sense at all for the UK.

What we need to get into a situation is, just as in the States, there is a real desire to go again. Either they are very successful entrepreneurs. They eventually sell out or they sell down through the equity market and then they go and set up another business or they in reinvest in a number of other growth companies. We don't have that culture in the UK and that's something we've got to foster. Now, it's not going to be a silver bullet because this will take 5, 10, 15 years. But if you don't start, you're never going to get to a situation where you're successful.

And I think where you look at countries around the world that have addressed these problems earlier than us, you can see the success coming through. Sweden changed their attitude towards pensions 20 odd years ago, and they also changed their attitude towards investing in the equity market and now Sweden, for the size of country it has, has a very successful equity capital market that can keep a lot of their companies in Sweden. Similarly in Australia, you know, they created a situation where the Australian pension funds, they invest 20% of all of their pension savings into the Australian equity market. They're incredibly proud to do so. If you look at the Aussie Superfund, you can see that throughout their annual report, there are loads of comments about investing in Australia, in energy transition, in improving the economy,and it delivers good returns for the people who are saving as well.

So this is a real win-win-win situation whereby the pensioners are seeing good returns on their savings, the pension fund is becoming increasingly large and getting scale advantages, and the Australian economy has been benefiting from that pool of capital that they're staying domestic.

[00:41:36] Ralph Grayson: Gosh, there's a lot to unpick there. So look, if we can persuade the likes of Zilch to list in the UK that global investor base, as you imply, will have to take the UK seriously as a technology led market.

You've touched on policy there, you've touched on culture. What I find interesting when I talk to boards and board members is this balance between culture and fiduciary duty. My question is, how do we stop boards accepting offers at the wrong valuations? How do we stop this seeming prevalence to exit too early?

[00:42:14] Charles Hall: I don't think one can criticise boards because if they are shown an offer that is attractive and the management want to accept it, the shareholders want to accept it, the board agree, independent valuers agree, it's very difficult to say you shouldn't have done that. What we have to address is the cause of that. And the cause of it is the valuations in the UK and this is all about capital. Capital flows are really important in driving valuations. You know, one of the reasons why the US market is valued effectively higher than the UK is because they have a wall of capital coming in through the 401Ks, and the wealth creation that provides.

One of the reasons why in general valuations have been lower in the UK has been because UK investors have been going into passive investments or global investments, and so we've seen a reduction in allocation to UK. If we reverse that, we would very quickly see valuations improve. Now, one has to be quite careful in talking about valuations because it very easy to give a view that is generic. The reality is it's specific for every sector and every company and when you compare certain companies into certain sectors, you can actually see that the UK can value companies just as highly. Now, a good example is a company we floated last year, Raspberry Pi. Raspberry Pi has been very well accepted by the market. It's a really exciting UK technology company.We've got a long list of global investors who want to participate in the growth of that company. So you are able to access a large number of the same investors that would invest if it was listed in the States.

So it's wrong to say that we have valuations that are inherently lower. But there are plenty of situations where there are valuations placed on US companies where they can come and buy our companies and effectively get a bargain. So, we have to look at every situation on its own, but what we really need is valuations to be higher, that effectively mean that it's very difficult for someone else to take you over and then that would also help the IPO market. So these things are totally interconnected.

[00:44:36] Ralph Grayson: Let's just address that. So, there's a lot of talk that there is a discount to being a UK listed company, which is why a lot of boards are maybe flattered into thinking they will have a higher valuation in the US. That's a myth?

[00:44:55] Charles Hall: It's difficult to actually come out with a definitive view. There is not enough evidence to say you will definitely get a higher valuation from moving to the US. The reality is most of our companies, if they moved to the US, are going to be minnows. They're not going to be in the S&P 500. They're not going to be gaining the passive funds or the global allocation of capital and there are lots of negatives of moving to the US in terms of regulation and exposure to litigation and time you have to spend going around numerous cities inthe states to see investors. So it is definitively not nirvana to go and list in the US.

Some companies may see a benefit, and one of the issues we have is to ensure that we have a broad enough pool of capital for each sector and broad enough research capability to be able to explain those stories to global investors. And as I said earlier, we are now spending most of our time talking to international investors. That is a big change. So the thought process that says, by listing in the US I'm going to find that I can access a different pool of investors, that's not necessarily correct. And actually, a lot of US investors are pretty parochial, and so a company that has the weight of its business outside the US, they're less likely to invest in than one that has the weight of its business inside the US.

So you have to be really careful when thinking about that dynamic. We've already seen a change in that. You know, there was a thought probably two years ago where there was going to be a wall of companies considering this, and I know it was on the boardroom table that there was a lot of debate around have we got the right listing? And I went in to speak to a number of boards to discuss this exact point and they were getting challenged by investors and the non-execs were saying, should we be thinking about it? I think the mood music has changed.

But again, we cannot be complacent. Our companies can list anywhere. If the UK is not working for them, they will think about other markets and obviously AstraZeneca has been vocal in recent months. It would be naive to think that these companies won't decide to move their listings, and it may not just be about valuation. There are a whole host of other reasons. But it comes back to these businesses are really important to the UK. We need to be thinking hard about how to retain them and it's making sure that we keep their emotional capital as well. You know, the second they start thinking, I'm better off elsewhere, you've half lost the battle. And one of the things to remember is that boards now are increasingly international, and again, 20 years ago you would've had, most boards would've been UK dominated. That's not the case anymore.

The reality also is that investor base is now increasingly international. So the investor base will also be thinking about where is the right place for this company to be listed?

It's a big challenge to move and I think we've seen, you know, a number of companies have thought about it and have actually decided not to, Glencore being a recent example. So I think there's a lot of debate here that needs to go on. But I think the really important point is we in the UK must not be complacent and assume all of our leading companies will stay in the UK. We actually need to make sure that capital markets work for them.

[00:48:30] Ralph Grayson: Let's try and finish on the positive. So your summer conference was entitled "The Age of Opportunity: UK Market at a Moment of Renewal." So how do we balance a sense of positivity about London as a capital market, but still keep relentlessly driving to achieve the change and reform we need? Steven Fine, your own CEO, has written recently that the City's darkest days are behind it. What was the mood of the attendees at your conference in the boards of UK PLCs? What's driving their agenda?

[00:49:07] Charles Hall: I think one of the most important points is that we spend far too much time thinking that everything that's going on in the UK is then reflected globally. Now, the reality is we obsess about our politics, our economics, our infrastructure, all the sorts of things that go wrong. If you are a global investor, you are comparing the UK to a host of other markets, you are thinking about where the best companies are, what's a good market to invest in. Whether you agreed with Brexit or didn't agree with it, the reality is Brexit was a seminal moment for capital markets in that the UK went down the priority list of international investors, and that was partly because of uncertainty, partly because of the expected economic performance. But it was very clear that a lot of international investors felt it was easy to downplay the UK to underweight the UK.

That has fundamentally changed and that's changed one, because of the passage of time, it's no longer an issue. Two, because the growth rate in the UK is improving, albeit, you know, people will question that. We're not seen now as an underperforming economy. Three, because relatively compared to a lot of other countries, we're actually in a pretty decent position. You know, there's clearly a question mark about the US with all the tariffs, and there's a lot of debate about how that ends up. But what it's definitely done is made international allocators of capital think twice about being overweight in the US then if they go to other markets, which markets around the world, look sensible places to put your money.

Actually, the UK is pretty close to the top of that list. Now we're obviously a very open economy. You can invest in the UK very easily. We've got rule of law, companies behave themselves, so there's a lot of trust that gets built up just in the infrastructure of the UK. What we're also seeing from a political point of view, there is a lot more credibility on the international stage of our government than necessarily domestically and a number of the policy decisions they are making should drive longer term growth. And that is things like addressing planning regulations.

Now, one of the major negatives in the UK for probably 25 years is that we have one of the most expensive places in the world to create large infrastructure projects. Whether that's HS2, whether that's nuclear facilities, whether that's roads. It takes years and years and years, and that's before you've even put a spade in the ground. So that has put a lot of the largest global investors off investing in the UK. Because the returns just haven't been there. So addressing planning is a fundamental change and a really positive change and clearly we are very much welcoming international investors, and we've had some of the largest international investors around the world across infrastructure and across property effectively voting with their feet and saying, we want to invest in the UK. Now, of course, it's not a panacea. We still have some issues to address and our energy costs are far too high. We're not building enough homes. So there's loads of things that we still need to address, but relatively, the UK is now a much more attractive market.

Then when you look at the capital markets, you can see that the FTSE is performing better.We are able to raise money for companies. There was a period where it was felt really challenging to go and raise new capital for companies and we've raised hundreds of millions of pounds in just the last couple of months. So what we are seeing is that investors are happy to back growth projects, to back companies, and so our message to company executives is, we are through that period where it was really challenging to be in the UK. Whether that was because of the domestic economy or because you felt curtailed by capital markets. We are now in a situation where shareholders are wanting executives to be braver. We've had a pretty extraordinary last five years now, whether it was COVID, Ukraine, inflation. Nowthis was not normal, and so it's been entirely understandable for boards to be very reticent, to be very careful, to feel that doing something was highly risky. Now it feels much more, let's get on the front foot. Let's make our business grow faster. Let's invest for the long term. Shareholders want to back us. Probably one of the most important themes that's been coming through recently is that scale matters and you've seen that through a lot of the real estate companies where there's been significant activity to increase size of businesses. And this goes for the whole UK market. Size really does matter. One of the stats that pains me is that Nvidia market cap is bigger than the FTSE all share and that we need to make sure that the FTSE all share grows its market cap. The bigger it grows, the more we will attract international money.

But what's also helping is sterling. You know, while sterling was weak, that made the UK a difficult market to invest in. Now you could buy cheap assets, yes. But you weren't putting your capital to work because it was being devalued. What an appreciating sterling does is make the value of our whole market larger. That means that asset allocators have to put in more money. So there are still challenges, but we certainly feel that the investor base is now feeling much more positive about companies being proactive and so we're discussing with a number of our companies, what could we do? Where is the opportunity? Can we look at an acquisition? Can we raise money to invest organically? Because I think we are now in a situation where we're going to see stronger economic growth.

Despite all the doom and gloom that you read in the newspapers, the reality is, our banks are well financed. Our consumers balance sheet is in pretty good shape. What we actually need to have is a healthy dose of enthusiasm. If we have that, we're actually going to start to see the flywheel turning and start to see an acceleration in economic growth, and then that will provide the confidence for companies to go out and be more proactive.

[00:55:49] Ralph Grayson: So hopefully all our listeners are suitably enthused. If they'd like some more detailed advice of whatever corporate finance nature, How do they follow up with you? How do they connect with Peel Hunt?

[00:56:00] Charles Hall: Well either through LinkedIn and so that's a very easy way of doing it, or directly with me, charles.hall@peelhunt.com.

[00:56:08] Ralph Grayson: Charlie, thank you very much for all your insights.

[00:56:11] Charles Hall: A pleasure.

[00:56:12] Ralph Grayson: I hope that you've enjoyed listening to this podcast and have found it helpful when thinking about how to approach your own path to the boardroom. If you would like to push this a little bit further, Sainty Hird runs a bespoke one to one Programmeme designed specifically to this end. For more information, please visit our website, saintyhird.com, follow us on LinkedIn, and subscribe to the Boardroom Path to receive new episodes. Thank you for listening.