American money managers are taking over the UK stock exchange. Here’s why that’s a problem

Their percentage of the market has reportedly doubled since the EU referendum, when many other international investors fled – but they bring with them an awful record on the climate crisis, says James Moore

In the driving seat? American investment in the FTSE 100 has soared (Getty)

The stars and stripes are flying over the UK stock exchange if figures from Link, the financial administration firm, are to be believed.

There are reasons to feel concerned about that, and I’m going to explain why.

But first, let’s look at the data, which comes from Orient Capital, Link’s investor relations unit.

It shows that just over half the shares in UK-listed companies are held by overseas investors. That shouldn’t surprise anyone; the London Stock Exchange has long been one of the world’s most international markets.

What has changed, according to Link, is the complexion of the international component. The EU referendum saw overseas investors taking flight, and many have steered clear since then.

You can hardly blame them given the mess that’s subsequently been created by successive Conservative governments.

North American managers are the exception. Their holdings have almost doubled since then.

Some 35.9 per cent of the FTSE 100 and the second-tier FTSE 250 is owned by funds and trusts overseen by American money managers.

BlackRock and Vanguard, purveyors of “passive” investment vehicles that aim to track stock-market indices, together have 10 per cent. That’s almost as much as is owned by European institutions combined (11 per cent).

Here’s why this US takeover matters. At the start of the year, Larry Fink, CEO of BlackRock, which is the world’s biggest asset manager, correctly talked about climate change becoming “a defining factor in companies’ long-term prospects”. He said it was going to be put at the heart of the company’s strategy.

It was a welcome but overdue recognition of the problem by the firm. However, it remains to be seen how it will play out in practice. It bears repeating that the record of US managers when it comes to the climate crisis is best categorised as “awful”.

This has been demonstrated by various analyses of their voting behaviour. ShareAction, for example, looked at the votes cast by 57 of the world’s biggest asset managers on a total of 65 proposals designed to speed up corporate action on climate change.

All 10 of the least supportive came from the US, including BlackRock.

A second study, this time by InfluenceMap, graded managers on their climate engagement, based on a number of metrics. US managers again scored poorly (BlackRock got a C+ and that was by no means the lowest grade).

By contrast, UK managers and their European counterparts earned much better grades.

If the influence of the latter is declining, then so could the pressure on British companies to do better. If that happens, it’s a problem.

The pandemic may be dominating the news at the moment, but in the long term, the climate crisis will have a far greater impact, and not just on the economy and corporate performance.

It isn’t just on matters related to the climate where this US takeover becomes an issue. The grotesque remuneration packages that are the norm for American chief executives have, in part, been allowed to develop through a willingness among that nation’s fund managers to wave them through.

Such packages are patently not in the interests of shareholders; there is no evidence that they improve corporate or economic performance.

UK managers, alive to public discontent over sky-high executive pay – and rewards for failure, in particular – have increasingly taken issue with some of the worst packages.

Nevertheless, it remains extraordinarily rare for companies to lose voluntary votes on remuneration reports, let along the binding votes held on remuneration policies, because the UK managers don’t have sufficient clout by themselves.

A UK corporate governance expert that I spoke to on the subject viewed the rise in US ownership as a troubling development for that reason.

Absent a marked change in the way the votes of American fund managers are deployed, they are entirely right to feel this way.

Here is yet another unforeseen, and unwelcome, development arising from Brexit.