Britain’s equity market is shrinking

A FEW MONTHS ago Trian, a hedge fund, revealed that it had built a 6% stake in Ferguson, a London-listed company that supplies the building trade. Trian is run by Nelson Peltz, who has a long history as the sort of activist investor who buys stakes in firms and then uses his influence over management to boost the share price. Ferguson makes most of its profits in America. Yet its shares traded at a discount to peers listed there. Perhaps something could be done to change this.

Sure enough, Ferguson said last month that it would spin off the British part of the business to focus on its American operations. It also said it was considering moving its stockmarket listing. Should the firm leave, it will be part of a broader trend in Britain: the shrinking supply of equity capital.

America’s stock of equity has been getting smaller for a while, because of share buy-backs, a secular fall in the number of new listings and the growing incidence of leveraged buy-outs, in which low-interest debt replaces equity. Britain is now the leading candidate for such “de-equitisation”, says Robert Buckland, of Citigroup. The net stock of equity outstanding has fallen by 3% since the start of 2018, faster than in America. Cheap debt is a factor. But debt is cheap everywhere. What makes Britain so ripe for the picking is its culture of...