Hunt’s reforms don’t solve London’s systemic issue for smaller companies to access capital

A small part of these reforms focus on investment research, specifically rolling back MiFID II regulations that forced financial firms to separate the cost of investment research from trading expenses. This is part of his efforts to boost the attractiveness of the UK’s financial services sector having been under spotlight for attracting new IPOs.

Longspur Capital, being one of the few houses that provide an issuer-sponsored research model, contributed evidence to this review. Head of Research, Adam Forsyth, commented the following on Hunt’s proposals, who is of the view that there regulation cannot solve a systemic issue re smaller companies accessing capital in London:

“Irrespective of regulation, there is still a systemic issue that smaller companies cannot attract sufficient research coverage to raise their profile with investors as the economic model doesn’t work for the investment banks.”
“There is a high chance that fund managers will use this as an excuse to stop paying for research, putting pressure on brokers to target research on companies where trading commissions are highest or where they think they can win corporate business. That means small and mid-cap companies are unlikely to see more research.”
“While existing coverage by brokers will now be able to go to any investor that does not mean it will go to the right investors especially in specialist areas, something Longspur specialise in for clean energy companies.”