Overseas investors take over UK
A report by the Office for National Statistics (ONS) estimates that owners from the rest of the world hold 53.2 per cent of the value of UK stock. Ownership by overseas investors has increased substantially since 1963 and has now for the first time overtaken domestic shareholders. The ONS survey has estimated ordinary shares holdings in quoted companies in the UK by sector of beneficial ownership and found that UK individuals, who now once again represent the largest class of UK investors, merely held 10.7 per cent by value at the end of 2012.
After individuals, the next biggest UK shareholders are estimated to be unit trusts with 9.6 per cent holding, continuing strong growth seen in recent years. In contrast, insurance companies and pension funds have seen their holdings plummet over the years. UK insurers only held 6.2 per cent at the end of 2012, which is significantly lower than the levels seen in recent years. Similarly, pension funds holding well over 30 per cent of UK stocks in the early 1990s, have seen their ownership shrink to only 4.7 per cent. The report suggests that the decline in UK holdings by institutional investors reflects their broadening of portfolios in search for higher returns and the spread of risk.
According to the ONS: “The large increase [of world ownership] since 1994 partly reflects the growth in international mergers and acquisitions, and the ease of overseas residents to invest in UK shares.” The ONS survey clearly shows that two of the biggest overseas share owners are unit trusts and other financial institutions, together holding 57 per cent of UK stocks that are foreign owned and that such investors are primarily looking for financial returns for their overseas clients. The danger here is that they maybe less likely to take into account matters such as high standards of corporate governance or what is good for the British economy and society as a whole. For every CalPERS or Norges Bank there maybe several US mutual funds, whose views of executive pay are even more accommodating of corporate largesse than some of our domestic institutions.
Under a liberal capital market regime such investors should have the same rights as domestic investors, who might at least have a tendency to pursue long term investment strategies and ought to be more aligned with the interests of British society. Concerns about the globalisation of ownership should not be simply dismissed as parochial. Such a profound shift in the nature of the ownership of British business, and what it means for our system of corporate governance, deserves proper debate.