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A government drive to revive the City of London with a new system for trading shares in private companies has been dismissed by venture capital and private equity executives as unnecessary and likened to a “new version” of the UK’s ailing junior Aim market.
The Private Intermittent Securities and Capital Exchange System (Pisces)— proposed by the previous Conservative government and backed by Labour chancellor Rachel Reeves — would allow investors in private companies to sell shares on regulated exchanges.
The London Stock Exchange Group is one of the companies planning to operate a Pisces trading venue, where shares could be traded on a limited number of days each year.
But investors have questioned how much demand there would be for the system, adding that bosses of fast-growing companies would be reluctant to opt in because they would risk losing control over who owns a stake in their business.
“I just don’t see who’s going to use it,” said a partner at a top venture capital firm. “It’s a bold solution to a problem that is far more complex than the protagonists are willing to understand.”
Hussein Kanji, who founded Hoxton Ventures, said: “What problem does this solve?” The new system would be problematic for venture capital backers because trading of shares on private exchanges would assign a listed price to their portfolio companies that would “likely be low and possibly volatile”, he added.
The Treasury has said Pisces would provide fast-growing companies an incentive to base themselves in the UK and act as an “intermediate step” to eventually listing on London’s public markets.
The London Stock Exchange has suffered investment outflows and lacklustre company valuations, with high-profile groups such as chip designer Arm Holdings floating overseas and public companies such as betting group Flutter moving their primary listings to New York.
Secondary share sales in unlisted companies have become prevalent as companies wait longer to list, leaving investors to find other ways to cash out.
In the US, Nasdaq Private Market has allowed investors and employees to trade company shares since 2013, while platforms such as Crowdcube, Seedrs and JP Jenkins enable share trading in the UK.
But multiple venture capital and private equity investors — to whom the government has said Pisces will be “of interest” — told the Financial Times they were unlikely to use the platform for selling shares in their own portfolio companies or that they did not think it would attract high-quality businesses.
Chief executives of top, fast-growing start-ups “want to fiercely control” who owns their shares, particularly to avoid people dumping stock on the first day of an eventual public listing, the venture capital partner added.
A person at a top international private equity firm added that “it would be difficult to manage” working with shareholders they did not know.
The Financial Conduct Authority has proposed allowing companies “very limited” scope to set restrictions on the types of investors who can buy their shares, including in some situations specifying a list of “specific individuals”. It has proposed allowing companies to limit the price range within which their shares could trade.
The Guernsey-based International Stock Exchange (TISE) already has a service for companies to run auctions of their own shares without a broker. Cees Vermaas, chief executive of TISE, said that based on its experience he doubted Pisces would be successful.
“We are sceptical that the rules [for Pisces] go far enough to make it a success, because companies will still have disclosure requirements,” he said, adding that “they will have many of the costs of a full listing”.
“Pisces is not much more than a new version of Aim,” said Vermaas, referring to London’s junior stock market that has suffered from a decline in listings and low liquidity, despite having less stringent rules than the London Stock Exchange’s main market.
The FCA said Pisces “will open the door to more opportunities for investors and could transform how private companies access investors and grow”, while the Treasury said the proposal was “just one part of . . . wider reforms to boost competitiveness and investment” alongside new listing rules and the creation of pension “megafunds”.
Charles Hayes, global co-head of private capital at law firm Freshfields, said that “for every [buyout executive] who tells you, ‘I don’t want to deal with thousands of investors’, the direction of travel is clear towards increasing routes to liquidity and . . . broader access to private capital”.
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