Stock Market: First-time Investors

Baroness Bowles of Berkhamsted Excerpts

Monday 3rd February 2025 Lords Chamber

[Baroness Bowles of Berkhamsted (LD)]

My Lords, I declare my interest as a director of the London Stock Exchange. I commend my noble friend Lord Lee of Trafford for securing this debate and for his enlightened vision on school investment portfolios.

For anyone starting to invest, perhaps with an idea or two but wanting diversification, a go-to investment for 144 years was listed closed-end investment companies, which offer a treasure chest of good things. Some offer portfolios of other quoted equities, both UK and international, but over half invest directly into social infrastructure such as hospitals, homes, schools and renewable energy. Some have local connections. How inspiring would that be to be able to visit projects or attend a shareholders’ meeting showing, for example, how unrecyclable waste wood is turned into energy instead of landfill? Can we not just get this off the ground? This requires listed investment companies to still be around to inspire all investors, especially in the infrastructure sector.

Let us remind ourselves why they were the jewel in the crown of the City for so long. They are diversified and can hold a wider range of assets than open-ended mutual funds—notably, real assets such as vital infrastructure and housing. They provide permanent capital to the underlying investment because, when investors buy and sell listed investment company shares, the manager does not need to disturb the underlying asset; nor are they exposed to run withdrawals. There are no deductions from investor share value, with market share prices already discounting expected expenses from net asset value. The wisdom of markets scrutinises and sniffs out performance and all other issues with alacrity; they are transparent public listed companies with audited accounts.

Unfortunately, the Government are contributing to killing them off. How? They are doing this by legislating that listed investment companies must be double-regulated; growing the mountain of lost investment to £100 billion while we wait for FCA rules; undermining the stock market and its reputation; opening the door to attack by Saba and their ilk, and not being internationally competitive.

Why? It is because we cling to EU legislation that, since 2022, we alone enforce, counterproductively, so that listed investment companies’ internal expenses—already discounted in share prices—are presented as additional deductions to be paid directly by shareholders, when they are not.

The FCA is consulting on change, with products such as open and closed-ended funds being described as substitutable, when they are not. It continues its obsession with comparing costs as the yardstick for selection. Open-ended funds have different mechanisms behind their costs. They have to continually rebalance portfolios. They cannot use leverage. They do not have maintenance cost for real estate. The list goes on, so why compare? It is far better for each to explain what each does.

It is easy for a Government who need growth and a stock market recovery to do one simple thing: end double regulation and return listed investment companies to their original status, when they made small fortunes for countless private savers while supplying essential capital to British infrastructure and industry.