London Stock Exchange boss boasts IPO optimism despite market malaise

David Schwimmer, the chief executive of the London Stock Exchange Group PLC (LSE:LSEG), remains optimistic about the future of initial public offerings (IPOs) in London and globally, despite current market challenges.

In comments made to Reuters, Schwimmer highlighted that the IPO market is expected to rebound from its current lows, which have been influenced by rising interest rates and geopolitical and economic instability. 

He also believes that IPOs will make a comeback once the environment stabilises and improves, even if conflicts like those in Ukraine and Gaza persist.

“Markets are very adaptable, if this is the new norm then markets will adjust to that and people will raise capital in that new norm," he said.

Schwimmer also appears optimistic about the raft of proposed reforms in the pension funds space.

The government intends to revise pension policies, enabling defined contribution (DC) schemes to increase their investments in equities.

During his address at Mansion House in July, Jeremy Hunt unveiled the 'Mansion House Compact', an agreement with major pension providers including Aviva PLC (LSE:AV.), Scottish Widows, and Legal & General Group PLC (LSE:LGEN).

These firms oversee approximately £400 billion, representing about two-thirds of the assets in the DC sector.

The objective of this compact is to dedicate a minimum of 5% of default funds to investments in unlisted equities by the year 2030.

"The reforms that the FCA is putting through, they're moving relatively quickly, but the markets move quickly too. I would love to see these kinds of changes be put through as quickly as possible, but these processes take time," commented Schwimmer.

London's IPO market in 2023: A mixed picture

Despite a challenging first half of 2023, London's capital markets have shown comparative resilience.

UK-specific fundraising in the third quarter was down 36% compared to the same period in 2022, while Global IPO proceeds totalled US$38.4 billion in the third quarter of 2023, marking a -27% year-on-year downturn

However, removing the impact of Arm Holdings’ blockbuster IPO in the US, which raised nearly US$5 billion alone, brings global year-on-year IPO proceeds effectively in line with the UK at -36%.

The London stock market edged out Asia-Pacific’s -41% year-on-year decline in proceeds in the third quarter, while staying lockstep with the wider EMEA average.

Pitchbook's Analysis: A Cautious Outlook

Contrasting Schwimmer's optimism, an October report from Morningstar's Pitchbook Data painted a more cautious picture. 

It suggested that the prospects for public market debuts continue to be dampened by market declines and higher rates.

Pitchbook said that achieving successful IPOs at robust valuations is becoming increasingly challenging, as evidenced by underperforming market debuts like Instacart (NASDAQ:CART) and Birkenstock.

The report also highlighted the impact of decelerating revenue growth on startups, making it harder for them to meet their elevated valuations from 2020 and 2021.