Richard Buxton says UK equity market in a ‘very sorry state’

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Richard Buxton has warned of the “very sorry state” of the UK equity market as he prepares to retire after 40 years as one of Britain’s best-known fund managers.

Buxton, who leaves Jupiter Asset Management at the end of this month, said the most stark development in his career has been the shrinking of the UK market. “The decline will take many years to reverse,” he said, although he added that many parts of the City have “changed for the better”.

His warning about the UK market, which trades at a discount to the US and other rivals, comes after British chipmaker Arm opted to list in New York rather than London and CRH, the world’s largest building materials group, switched its primary listing from London to New York.

According to investment bank Peel Hunt, the FTSE SmallCap index has 61 fewer companies today than it did five years ago.

Buxton, who is 59, started his career in the 1980s, making his name as a traditional long-only investor, running funds that hold about 30 shares for long periods of time.

Returning an average annual total return of about 8 per cent over the past two decade, according to Trustnet, he has outperformed his rivals for much of his career, except for 2018 and 2020 when he lagged his peers.

“What has changed for the worse, is that for the first half of my career there was a deep, liquid savings pool focused on investing in equities — pension funds and insurance companies.”

He added that an “unholy trinity” of accountants, actuaries and regulators had “completely eroded this equity-oriented savings pool . . . such that the UK equity market is now in a very sorry state with no natural investors”.

Buxton spent a large part of his career at UK fund manager Schroders and became known for speaking out on governance problems.

“I’ve gained a reputation for being outspoken or intervening,” he said. “I have usually tried to effect change where I’ve disagreed with a company quietly behind closed doors.

“Only if this isn’t working have I tended to go public — and usually am contacted by other fund managers saying they agree with me.”

He cut his teeth at Brown Shipley in 1985 before joining Baring Asset Management as head of UK equities, moving to Schroders in 2001 and then switching to Old Mutual Global Investors in 2013.

At Old Mutual, he became chief executive, spearheading a management buyout with the backing of private equity firm TA Associates. The carved-out business, renamed Merian Global Investors, was sold to Jupiter in 2020 for £370mn.

During those years, global fund management has changed radically, shifting from a culture of “star” stockpickers to the rapid expansion of low-cost index-tracking products.

This growth of exchange traded funds, which recently hit $10.32tn of assets under management, has squeezed fund management fees and put the spotlight on performance.

“The City and the market have changed hugely since I started just before Big Bang,” said Buxton. “The traditional City lunch was de rigueur then, there was a pervasive drinking culture and obviously it was a very male environment. Much has changed for the better.”

Although Buxton has had a number of corporate governance spats, he particularly recalls the time he spoke out against Stuart Rose’s attempt to go against the UK corporate governance code and move from chief executive of Marks and Spencer to executive chair in 2008.

Rose ignored shareholder protests and kept the position but according to Buxton, “The deputy chair told me afterwards, ‘you lost the battle but won the war’, as by objecting so strongly other companies realised they could not do the same willy-nilly.”

Buxton, who has been a longstanding shareholder of certain banking stocks, also said he urged the Treasury during the 2008 financial crisis not to fully nationalise the banks.

“I’ve lived through numerous crashes or panics,” he said, from the market crash in 1987 to the coronavirus pandemic.

“Bear markets are far worse than panicked collapses. In the latter you don’t have time to change your portfolio but you have immediate opportunities to add to positions at ludicrously cheap levels.

“But in grinding bear markets you have to be positioned to minimise losses, survive and try to identify the moment to buy some very depressed stocks towards the end for the upturn.”

On the whole, he said, his career has been “huge fun”.

“The opportunity from a very young age to meet with senior, experienced managers of businesses and quiz them on their companies, strategy and management has been an immense privilege.”