City Titans Back Crunch Stock Market Probe

By Mark Kleinman, City Editor

The City's most powerful investor group is launching a probe into the effectiveness of Britain's stock markets amid deepening concern that 'short-termism' is damaging the country's wider economic interests.

I have learnt that the Association of British Insurers (ABI), whose members own about 20% of the blue-chip FTSE-100 index, has begun consulting with leading City firms over what is set to be one of the most important inquiries in its history.

People close to the ABI said the investigation would examine a string of issues which have provoked controversy in the City in recent years, including the functioning of the market for new share sales.

The number of initial public offerings (IPOs) has dwindled since the financial crisis of 2008, partly because of mistrust between the private equity groups attempting to sell their portfolio companies and stock market investors.

The ABI inquiry is being headed by Robert Talbut, chairman of its investment committee and a senior fund manager at Royal London Asset Management, and Robert Hingley, the group's director of investment affairs.

Sky News understands that the ABI has drafted in Angus Bogle, a former executive at Citi, the investment bank, and Fidelity, the fund management giant, to oversee the probe.

Meetings have been scheduled with leading fund managers and investment banks in the coming weeks, with the aim of producing a series of recommendations in a report later this year.

The ABI, whose largest members include Legal & General, Prudential and Standard Life, will also look at the tax treatment of debt and equity; assess ways to improve the market for equity investment in support of longer term growth; and examine shifts in the composition of investors' portfolios in recent years.

Perceptions of investor short-termism have become a hotly-debated political issue, particularly after a spate of foreign takeovers of major listed UK companies, culminating in the takeover of Cadbury by Kraft Foods of the US in 2010.

Last year, John Kay, an economist, published a report commissioned by Vince Cable, the Business Secretary, in which he recommended an end to quarterly company reporting and the establishment of an investor forum to encourage more effective engagement with public companies.

Mr Cable said at the time: "Many of us feel that in the past, our public companies and investors have focused on short-term profit at the expense of long-term value.

"The behaviour of many banks in the run up to the financial crisis is an extreme example of this quick buck mentality, but there is clearly a wider problem."

Some senior ABI figures are understood to have felt that Professor Kay's review did not go far enough, prompting the lobbying group to launch its own probe.

Earlier this month, Labour published a separate review which recommended reforms to executive pay packages and changing the rules governing overseas takeovers of British companies.

The ABI, which declined to comment on its investigation, is one of the most influential lobbying groups in British business. Late last year it published a report in which it warned that reforms to the regulation of the banking industry risked making the UK's biggest lenders uninvestable.

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