A wave of shareholder activism will sweep the UK - with Swen Lorenz

Yeah, so I want to dig into the sort of the reasons behind the current sort of undervaluation of eukaryotes.

So one of the issues that people talk about are the culture of dividends versus share buybacks in the UK.

So I guess like a capital allocation problem.

And the narrative is that UK investors, especially institutional investors, the big funds that are obsessed with income, So they're obsessed with the dividend income from companies.

So this then forces companies to prioritize that over, you know, maybe investing for the future, for example.

Is that an argument do you think that sort of that holds true?

It's certainly one of the reasons for what we're seeing right now and maybe to take a step back.

So 20 years ago, Think back to 2006, the London Stock Exchange and London as a financial center generally were the number one or the number two financial market in the world together with New York.

They were always sort of on par.

And London was setting trends.

Innovation was happening here.

And one, I think, simply has to say, and I think this is a fairly objective assessment without, you know, moaning about how bad things are.

And there's a lot of moaning going on in the UK.

I think the UK and the UK market have simply fallen behind in terms of their standards that they apply.

And dividends are a great example.

So if you have a company that's trading at say less than 10 times earnings and you are in an environment with 5% interest rates, then a capital allocator will always decide that it is financially rational to buy back your own stock rather than to pay dividends.

If you look at long-term value maximization, that's what you have to do.

This is objectively and measurably and mathematically the right way forward.

However, you have this issue that we just spoke about of the UK equity funds being in a mode of self-liquidation almost because investors are continuously pulling money out.

So these mutual funds need cash because they have to redeem shares in their own funds.

They have to send money back to investors.

So, of course, these mutual funds are managed by people who are mostly employed in large corporations.

They want to preserve their jobs.

So their way how to deal with this ongoing crisis of self-liquidation is to push their investee companies to pay them dividends because dividends means they get cash in and that allows them to redeem shares.

And then you're in a it's the opposite of a virtuous circle.