Thrilled to see our CEO, Moray Wright, featured in Business Weekly’s article, discussing technology funding and the UK’s economic ecosystems, especially pension funds. The government’s aim to develop the UK into a science superpower is focused around investment in the five technologies of tomorrow, areas in which Parkwalk has plenty of experience: quantum, AI, engineering, semi-conductors, and future telecoms.
Read the full Business Weekly article here.
On Arm’s decision to IPO in the US and the issue of funding later stage UK technology generally, I would suggest that the UK ecosystem is more risk averse than some of our competitors, writes Moray Wright, CEO of Parkwalk Advisors.
The current system makes defined benefit (DB) and DB-Hybrid pension funds mark-to-market their holdings every year with companies having to make up any shortfall in the scheme.
With market volatility this means pension funds have moved from ‘balanced’ or ‘growth’ investments to ‘safer’ fixed-income bond holdings. This has led to DBs reducing their UK equity holdings from c.50 per cent in 2000 to c.4 per cent in 2022 according to Ondra Partners.
This also explains the ‘mini-budget’ LDI crisis with over-leveraged positions in fixed income chasing a higher yield.
This regulatory framework is not only negative for investors who are forced to invest in assets that yield less than inflation but also for UK plc as companies do not get the growth capital they need (through equity issuance); this is before one looks at the lack of job-creation this leads to and the subsequent effect on UK productivity and growth.
In other nations, pension funds are allowed to allocate commensurate amounts of their investments into infrastructure and growth companies (PE and VC).
This leads to a thriving financial ecosystem of investors at different stages of a company’s growth, from seed through to stock market listing. And this is why the US markets, such as NASDAQ, appeal to UK technology companies looking to list.
There is a much larger pool of potential investors in the US, which means companies can raise more capital at better valuations. Australia and Canada have similar frameworks for their pension funds to invest across multi-asset classes.
Over the medium term we need UK governments to enable a system that is fit for purpose to allow growth companies to prosper here and generate the wealth the nation needs.
I don’t think that means the Government needs to be or do everything – just have a consistent set of policies that fosters research. For example the world-class R & D tax credit system that has just been adversely amended, the great things done by UKTI and a regulatory environment that allows investment in growth by long-term capital (eg the proposed Edinburgh reforms to Solvency II to allow pension funds to invest in this asset class).
Once this system is in place, we need stability to afford actuaries and advisers the time to implement the changes needed to allow funding of the talent to create the tech giants of tomorrow.
Read the full Business Weekly article here.
