Despite tumbling stock market valuations the impact of overseas shareholders in the UK stock market is greater than ever. This could have far reaching implications for the UK government’s attempt to beef up corporate governance.
According to figures released this week by the Office of National Statistics, non resident shareholders now account for 41.5% of UK listed shares, up from 40% as at the end of 2006. In 1981 foreign ownership was a mere 3.6% but the collective overseas ownership has reached over £480 billion, approximately a third of which is European and one third North American.
The losers in the ownership stakes have been UK institutional shareholders. The proportion of shares on the London market owned by insurance firms and pension companies has been in decline since 1993 when their combined stake in UK shares was 52%, but by the end of 2008 that had dropped to just 26%. Insurance companies tip the balance in terms of majority UK ownership at 13.4% versus pension funds 12.8% but both insurance and pension fund holdings are at their lowest levels since the 1960s.
It’s not just the size of overseas investment that’s of interest to governance watchers but where that ownership is now concentrated. ONS reveals that overall, 84.6% of equity investment in quoted companies was in FTSE 100 companies.
These changes in ownership structure will bring challenges for investors and companies alike. Where historically either party in a shareholder dispute would reach a concensus relatively quickly through conversations on home turf, the dispersed nature of owners is likely to make the process not only more protracted but complex as investors from overseas markets bring different views and considerations to the table, be that views on pre-emption or tax concerns.
The global nature of the UK market also raises the question about the legitimacy of UK-only shareholder protection groups whose members are invariably UK residents. The Financial Reporting Council in its recent consultation said that it wanted to hear more from non-resident shareholders on the operation of the Stewardship Code; as they are now in a position to out-vote their UK peers that’s just as it should be.
UK Share Ownership 2006
- Rest of world 42%
- Insurance companies 13%
- Pension funds 13%
- Individuals 10%
- Unit trusts 2%
- Investment trusts 2%
- Others financial institutions 10%
- Charities 1%
- Private non-financial companies 3%
- Public sector 1%
- Banks 4%
Update March 15, 2010