U.K. pension funds and asset owners with a collective £136.2 billion ($173.2 billion) oppose reforms to U.K. listings that would allow for dual-class share structures that carry separate levels of voting rights.

Dual-class share structures are already prevalent in other markets, such as the U.S. and Sweden. More than 40% of U.S. technology initial public offerings used dual-class structures between 2020 and 2022, according to a report by the Investor Coalition for Equal Votes.

In a signed a letter to Ashley Alder, chair of the Financial Conduct Authority, seven pension funds wrote that the proposed rules “will make the U.K. less appealing as a destination for capital, exacerbating the current issues by making U.K.-listed companies less attractive to the kinds of high-quality, long-term investors that both our pre- and post-IPO companies tell us they are looking for. In turn, this could raise the cost of capital for U.K.-listed companies as investors require a higher return for the increased risk,” the letter read.

Signatories to the letter were led and coordinated by Caroline Escott, chair of the U.K. Asset Owner Council Corporate Governance Group, and acting head of sustainable ownership at the £34 billion Railways Pension Scheme, London.

Claims of dilution

Dual-class voting leads to a system in which one type of share can carry multiple votes on issues raised such as at an annual general meeting, while others may carry only one.

Such a structure already exists at certain public companies in the U.S. According to data from the Institute of Directors, a U.K. professional organization, at car manufacturer Ford Motor Co., dual-class shares allow the founding family to control 40% of shareholder voting power with only 4% of the total equity. Mark Zuckerberg, CEO of Meta, controls 57% of the voting power at the firm despite having an overall shareholding of only 13.6%.

The letter to the FCA went on to claim that such proposed share structures could be “diluting shareholder rights” in a way can be detrimental to firm value and leading to worse outcomes for pension plan participants.

In response to the letter, an FCA spokesperson emailed a response to Pensions & Investments: “Our proposals encourage a wider range of companies to list and raise capital in the U.K., increasing opportunities for investors and supporting the nation’s growth.

“Pension plans continue to invest in markets where our premium listed protections don’t exist and combined with insurers hold an estimated 4% of the U.K.’s listed equity capital. We know these proposed changes rebalance risk, that’s why we have consulted the industry extensively on the proposals and we will take account of all feedback in determining our final rules.”

Further signatories to the letter were Robert Branagh, CEO of the £7.7 billion London Pensions Fund Authority; Adam Matthews, chief responsible investment officer at the £3.3 billion Church of England Pensions Board, London; Dan Mikulskis, CIO at the £25 billion People’s Partnership, Crawley, England; David Murphy, CEO at the £10.2 billion Northern Ireland Local Government Officers’ Superannuation Committee, Belfast; Andrew Thornton, chair of the £18 billion West Yorkshire Pension Fund, Bradford, England; and Faith Ward, chief responsible investment officer at the £38 billion Brunel Pension Partnership, Bristol, England.

Opposition to a dual-class voting share system was also in a letter sent last week to the FCA by the International Corporate Governance Network, which claimed that “we agree with the goal of a well-functioning and vibrant market but are concerned that this is not the way to achieve it.”

Norges Bank Investment Management, which oversees the $1.6 trillion Government Pension Fund Global, Oslo, also opposed the potential FCA reforms to U.K. listing voting structures in March this year, claiming they could “undermine the U.K.’s reputation as a market with robust investor protection.”

Read more @pionline