LGIM joins fund heavyweights in shunning Deliveroo IPO
Legal and General Investment Management, the UK's largest asset manager, has said it is “unlikely” to participate in the stock market flotation of Deliveroo next month, becoming the latest large scale investor to shun the food delivery company because of concerns over workers’ rights.
It's the latest blow after Aberdeen Standard Investments said will not invest in the IPO. The Edinburgh-headquartered asset manager, which oversees £535bn, had earlier said it is concerned about the sustainability of Deliveroo’s business model “including but not limited to its employment practices”.
Riders who work for Deliveroo are classified as self-employed contractors, meaning they miss out on basic employment rights such as the minimum wage, holiday and sick pay.
“We are unlikely to participate in the IPO via our active or index funds,” said LGIM, which manages £1.3tn.
“It is important to protect minority and end-investors against potential poor management behaviour, that could lead to value destruction and avoidable investor loss. 2021 has certainly brought a step change in focus on industry regulation as we see increasing signs of countries and governments reviewing the gig economy status.”
LGIM added: “We take our role as a responsible steward of our clients capital very seriously and engage with a number of companies in this sector on ESG concerns, like the rights of employees and proposed share class structures.”
Deliveroo announced on 22 March that it had priced its IPO at between £3.90 and £4.60 a share, which would value the business between £7.6bn and £8.8bn when it lists in April.
It would make an IPO by the company, which has never posted a profit since it was founded by Will Shu in 2013, the biggest on the London Stock Exchange since that of mining giant Glencore in May 2011.
Aberdeen cited “broader governance of the business” as a reason not to invest in the Amazon-backed company.
“As long-term investors, we’re looking to invest in businesses that aren’t just profitable, but are sustainable – employee rights and employee engagement are an important part of that,” said Andrew Millington, head of UK equities at Aberdeen Standard Investments.
“Our clients’ expectations of how we incorporate ESG into our decision making have changed hugely over the last decade and so we feel our clients are supportive of our approach.”
M&G, which manages £367bn, has also said it does not intend to invest in the Deliveroo IPO.
Rupert Krefting, head of corporate finance and stewardship at M&G, said: “Whilst we acknowledge the disruptive impact that Deliveroo has had on the food services market, we still see risks to the sustainability of its business model for long term investors.
“This is largely driven by the company’s reliance on gig-economy workers in the UK as informal employment contracts potentially fall short in offering the value, job security and benefits of full employment.”
Krefting added that Deliveroo’s narrow profit margins could be at risk if it is required to change its rider benefits to catch up with peers, such as Just Eat, which offers full employment contracts to its UK-based riders.
Steve Clayton, head of equity funds at Hargreaves Lansdown, told Financial News he won’t be investing in the IPO.
“The ESG issues are not good,” he said.
“Too many digital businesses push risk down to the workforce. For some riders, students perhaps, the Deliveroo model of working flexibly might be fine, but for others it offers a lack of basic security of employment and income.”
The comments from Aberdeen Standard Investments and Hargreaves Lansdown come after Aviva Investors, the £355bn UK fund manager, raised concerned about working practices at Deliveroo.
Speaking on Radio 4’s Today programme on 24 March, chief investment officer for equities David Cumming said a combination of “investment risk and social issues that affect our judgment whether the shares are a buy or not”.
He said employment practices was one reason why it would steer clear of the IPO, adding there was an investment risk if legislation changed which meant Deliveroo’s riders were reclassified as workers.
A spokesperson for Deliveroo said: “We are proud to provide work for 50,000 riders in the UK and that thousands more people apply to work with us every week. There has been a strong investor interest in our planned IPO and we are already backed by some of the most respected global tech investors.
“Deliveroo riders are self-employed because this gives them the freedom to choose when and where to work. We are confident in our business model, which has been upheld by UK courts three times, including the High Court twice.”
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