Xavier Rolet has never been afraid to have an opinion.
Having worked his way up from poverty in the Paris suburbs to the top of the London Stock Exchange, he has proved himself one of the City’s most pugnacious executives. Even if that did end up costing him his job as he fell out with the LSE chairman after the failed merger with Deutsche Borse.
Today, under lockdown in his central London home, he was keen to discuss his new job as chairman of stockbroker Shore Capital’s capital markets business; the part of the company charged with raising money for companies.
Rolet on why equity is better than debt to grow SMEs
While at the LSE, he repeatedly banged the drum for the government to encourage enterprises to use equity, rather than debt, to expand and invest. Most of his ideas fell on deaf ears. Hampered by regulation and taxation that skews firms to borrow rather than issue shares, the UK remains far behind the US in the equity stakes, which Rolet feels particularly holds back smaller tech companies.
“We are not as successful as the US at scaling our small and medium sized companies up. This is why we need equity. It is equity that allows firms to grow and develop from start-up to stardom.”
The issue, he says, is not that we have too few entrepreneurs – there are 5.4 million of them in the UK. The problem is getting them from their first round of financing “to rounds two, three, four and five”.
Whereas in the US more than 80% of funding for such firms is equity – be it on the stock market, from wealthy angel investors or private equity – here, it is the opposite, with only 20% and the rest made up of bank debt.
An angel investor himself, with interests ranging from agricultural science and his own vineyard in France to biotech start-ups, he blames punitive taxes and regulations such as Solvency II which require big institutions to hold what he sees as unreasonably large amounts of capital as a buffer when they invest in equity.
“We need to recalibrate, to reconfigure back into equity,” he says.
That will take a huge shift in public policy, but Rolet hopes Shore will go some way towards addressing the balance. “They believe in equity. Perhaps that’s why they’ve asked me to come and work for them, albeit part time.”
Rolet on tech investing
Long fascinated with advances in technology, at the LSE, the former Goldman Sachs trader spotted the need for the exchange to offer open access to its systems and capture the custom of the computer-driven trading firms using algorithms to invest. It was perhaps his most successful strategy there.
What does he see as the hottest sectors for technology now?
Without missing a beat, he answers: “quantum computing.” Having invested himself as an angel investor in the nascent science, he believes the potential new generation of supercomputers, capable of calculating multiple outcomes simultaneously, will revolutionise the world.
“We are on the verge of quantum computing and quantum communications breaking out into our daily lives over the next two or three years. They are going to be far more deeply revolutionary over almost everything we do even than scientists expect.
He cited “instant communication regardless of the distance between two points, teleportation, and simultaneous entangled computing” – the ability to make far more complicated calculations with massive amounts of data. This would prove critical to industries such as pharmaceuticals, which need to analyse billions of datapoints to make successful new medicines.
“Quantum computing will revolutionise that industry,” he said.
Rolet on the Stock Exchange’s $27bn Refinitiv gamble
Rolet left the LSE under something of a cloud in 2017. Since his departure, his successor has launched what many see as the huge gamble of buying Refinitiv, the former financial data business of Thomson Reuters, for a staggering $27 billion. The LSE is buying it from private equity owner Blackstone. The deal is still trundling through competition regulators, but Rolet seems far from convinced shareholders should hope it gets through.
“I think it’s a great deal for Blackstone, to be sure,” he says. “Speaking to someone there in the know, they reckon they tripled their money in about 10 months of ownership.”
He sees any diversification towards revenues in dollars – as most of Refinitiv’s is – as a good thing for any UK company if you expect sterling to remain weak.
He also sees the sense in integrating the two companies’ bond trading platforms, MTS and Tradeweb (“a home run if they can find a way.”)
But he worries much of Refinitiv’s tech is old and cobbled together from years of acquisitions of high end corporate service and advisory businesses.
“It needs a major re-do. Basically there’s no single technology. They’ve made a lot of acquisitions over the years and so that’s an entire re-do. I think that’s a major, major challenge.”
He wryly points out that many of his former top colleagues (who one assumes would be doing the legwork of that integration) have left in the past 12-16 months.
He adds: “Many of Refinitiv’s businesses had gone ex-growth, especially foreign exchange. And its terminals business is permanently wounded. A solution needs to be found for that – a sale or a partnership with someone perhaps.”
He also predicts banks and brokers will be concerned about the monopoly implications. They are, he says “exercised” by the prospect of the LSE becoming both the source of the data from its trading platforms and the disseminator through Refinitiv’s publishing.
Brussels regulators may also insist on the LSE selling its Borsa Italiana stock exchange to rival Euronext in return for clearance, he said.
The LSE’s current chief executive and architect of the Refinitiv deal, David Schwimmer, may feel Rolet is not best suited to comment on competition rulings, having seen Brussels torpedo his merger with Deutsche Borse.
But, while he will always be remembered for that final failure, Rolet did also do more acquisitions and integrations of businesses at the LSE than the exchange probably did in the previous 50 years.
If he says Refinitiv will be hard to swallow, Schwimmer would do well to worry.