The London Stock Exchange is launching a Specialist Fund Market, as it looks to challenge NYSE Euronext for the lucrative listings of alternative investment funds.
The lightly-regulated market, which is primarily aimed at sophisticated institutional investors, is intended to attract private equity, real estate and hedge fund managers looking to raise money by floating vehicles on the London market. Since many of these managers are based in the city, the LSE hopes this will help it to establish itself as the exchange of choice for listings of this type.
Previously, NYSE Euronext’s lighter regulatory burden had allowed it largely to corner this growing market. Last year both Kohlberg Kravis Roberts and Apollo Management both chose the Amsterdam exchange to float their permanent capital vehicles, while hedge funds Marshall Wace and Boussard & Gavaudan also listed there.
After London missed out on these lucrative deals, the UK’s Financial Services Authority implemented a light-touch regime for foreign funds listing on the LSE’s main market – but this was recently rescinded after opposition from traditional fund managers.
The LSE said the Specialist Fund Market would be “complementary” to the FSA’s new Unitary Regime for main market listings. However, the focus on institutional investors will allow it to implement lighter regulation.
In practice, this is likely to mean that funds will not be compelled to disclose their biggest commitments, appoint a “sponsor” with relevant expertise to advise them, or sign up to ongoing obligations about corporate governance and pre-emption rights. They will also be able to sell shares that do not have voting rights.
Retail investors will not be specifically barred from investing, particularly those “execution only” investors who waive their right to guidance from a financial adviser, but the market will be set up in such a way that it is unlikely to fulfil the suitability criteria for those who do invest via an intermediary.
Martin Graham, the LSE’s director of markets, said of the new initiative: “It will enable the London markets to continue to meet what we know is a strong demand among issuers and investors for a regulated market quotation suitable for these more complex entities, while remaining clearly delineated as a professional market.”