Podcast Summary
Businesses and Governments: A Complex Relationship: Microsoft's deal was scrapped, British firms are leaving UK due to pension system, Disney sues Florida Governor over tax privileges and free speech, tensions between business opinions and government laws.
The relationship between businesses and governments can be complex and contentious. In the news today, Microsoft's proposed largest deal ever was scrapped, and British companies are leaving the UK due in part to the pension system. Meanwhile, Disney is suing Florida Governor Ron DeSantis, alleging he violated the company's free speech rights after Disney spoke out against a controversial law. Disney has been trying to preserve its unique powers to manage the area around its theme parks, but the governor has targeted the company's tax privileges in response. Disney's legal case hinges on its claim that the governor's actions infringe on its First Amendment rights. Historically, Republicans like DeSantis have been known for supporting business rights, including free speech. This situation highlights the potential tension between businesses expressing their opinions and governments enforcing their laws.
Florida Governor Ron DeSantis vs UK Regulatory Environment: Different Challenges: Governor DeSantis faces criticism for his stance against progressive values, while UK regulators block big deals due to pension system and competition from US markets, hindering domestic fundraising.
Both Florida Governor Ron DeSantis and the UK regulatory environment faced challenges in recent times. DeSantis, a potential Republican presidential candidate, has been making a name for himself by taking a stance against progressive values, including his fight against Disney and his efforts to revise school curriculums. His actions have garnered national attention and criticism from liberals. In the UK, the regulatory environment poses a different challenge. British regulators blocked Microsoft's $75 billion acquisition of Activision Blizzard, a move that is likely to kill the deal. This decision comes as British companies struggle to secure the capital they need and face competition from US stock markets. The UK pension system is a significant factor, causing anxiety among entrepreneurs and hindering their ability to raise funds domestically. ImmunoCore, a biotech company spun out of Oxford University, serves as an example of this challenge. Despite its pioneering work in cancer medicines, the company faced difficulties securing funding in the UK and ultimately went overseas to find investors.
UK pension funds' risk-aversion hinders long-term capital for startups: UK pension funds' rigidity and risk-aversion limit their ability to invest in startups' growth, hindering the UK ecosystem's scale-up potential
The lack of long-term scale-up capital in the UK ecosystem, specifically from pension funds, is a significant challenge for startups looking to grow and eventually go public. The UK's leading immunologist and chair of ImmunoCorps, Sir John Bell, highlighted this issue, explaining that UK venture capitalists' pockets are not deep enough, and domestic pension plans are too conservative to invest in growth sectors. Pension funds are crucial institutions for supporting companies like ImmunoCorps by buying shares. However, the UK pension funds' rigidity and risk-aversion, stemming from the introduction of a new accounting standard in 2000, limit their ability to make bold investment choices and have maximum flexibility. Comparatively, pension funds and sovereign wealth funds in countries like Canada have more leeway to invest in early-stage companies, listed companies, and various asset classes. The Ontario Teachers' Pension Plan, with its impressive investment track record, exemplifies this. Their flexibility and long-term time horizon, coupled with a significant allocation to private assets, have contributed to their success. Therefore, addressing the risk-aversion in UK pension funds and providing them with more flexibility to invest in growth sectors could significantly benefit the UK startup ecosystem.
UK pension funds moving to fixed income led to less capital for UK firms: The UK pension system's shift to fixed income caused a decrease in capital available for UK companies from their domestic investor base, forcing them to seek alternative sources.
The UK pension system's shift from equities to fixed income by defined benefit pension schemes led to a significant reduction in capital available for UK companies from their domestic investor base. This movement was a result of companies' disclosure of pension liabilities as financial liabilities, causing boards to close down these schemes due to their magnitude and volatility. Trustees then shifted assets to supposedly low-risk government bonds, further limiting the capital available for businesses. This trend left UK companies in need of alternative sources of capital.
