Sir Clive Cowdrey warns stock markets shouldn’t go ‘accidentally’

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Cowdery says modern corporate voting structures for tech companies, in which founders have separate voting shares to maintain control, have tended to work against stock market listings.

For example, in the UK, the London Stock Exchange does not allow the listing of companies with dual-class share structures as it is considered poor governance.

Liquidity discount

Cowdery says the way around this problem is for exchanges to allow two-class structures but impose a sunset clause that requires one vote, one share 10 years after listing.

“That’s my take on the balance between keeping entrepreneurs willing to share the fruits of their growth with public markets and family capitalism,” he says.

“Get them public early, but at the same time realize they’ll want to keep their hands on the wheel.”

Cowdery says the reduced liquidity associated with public equity markets makes sense because it allows investors the freedom to move their money minute by minute.

“It’s very valuable because it then allows you to head into the slightly higher return dollar elsewhere,” he says.

“The world needs public procurement and so it should be part of public policy to ensure that you have a high growth public arena.

“Capitalism, like it or not, depends on the ability to put the productive elements of capital to work at the lowest possible cost. Stock markets have been pretty good at this and I don’t think we should let them die out accidentally.

Canadian pension plans

Cowdery believes there is a groundswell of support among industry super funds in Australia to accelerate their shift of investments from public to private markets.

“I believe there is serious discussion among the major supers in Australia about whether or not they should effectively disintermediate both the private equity industry, which charges a fee to do so, and the public markets which are sources of volatility.

“Instead, they would say, ‘We just own the underlying asset, just like Warren Buffett. Why don’t we just say we’re going to operate it?

“If that happens, then the pension schemes in Australia will become like those in Canada.

“Canadian pension plans more than anywhere else in the world own and operate businesses – I don’t mean they own temporarily to make a return, they run the businesses.

Cowdery says he’s worried the average person won’t be able to access the same diverse array of listed assets because they’ve moved into private hands.

This would deepen income inequality because average workers, who have seen their real income decline over the past two decades, would not have access to capital assets, the value of which has tended to skyrocket as the capital earned a larger share of the national income.

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