A US hedge fund has made a risky bet on the London Stock Exchange: Chris Hughes

Key topics:Elliott Management Corp. pressures LSEG on value, AI fearsLondon Stock Exchange Group Plc trades at discount to peersOptions include buybacks, Tradeweb Markets Inc. stake sale or spinoff.Sign up for your early morning brew of the BizNews Insider to keep you up to speed with the content that matters. The newsletter will land in your inbox at 5:30am weekdays. Register here.Support South Africa’s bastion of independent journalism, offering balanced insights on investments, business, and the political economy, by joining BizNews Premium. Register here.If you prefer WhatsApp for updates, sign up to the BizNews channel here..By Chris Hughes.David Schwimmer was a mergers and acquisitions banker at Goldman Sachs Group Inc. before becoming boss of the company that owns London’s stock exchange. Now activist hedge fund Elliott Management Corp. is parked in his drive, he needs to think like a banker again.London Stock Exchange Group Plc is a risky target for investor activism. It’s big, with a market value of £38 billion ($52 billion). And it remains a British icon even though moves into data and indexes have diluted the commercial significance of its share-trading revenue. Elliott has to find big prey given the size of its $80 billion fund. But the high-stakes dynamic makes it critical for billionaire Paul Singer’s firm that LSEG has untapped upside that can be released through pressure on the boardroom.At first glance, the opportunity seems to rest on a recent collapse in LSEG’s shares after markets started to see it as a victim of artificial intelligence rather than a beneficiary of new AI-driven data consumption. Several analysts reckon there’s a positive case to be made for the business given much of its data is proprietary. To simplify: You can plug in a chatbot but you still have to purchase a license from LSEG to play with its underlying data..Nevertheless, the company has a problem distinct from the AI noise. It trades at a large discount to most analysts’ fundamental valuations, such as the £57 billion calculated by Barclays Plc research. LSEG has also traded for several years at a stubborn discount to focused data peers such as Moody’s Corp., MSCI Inc. and S&P Global Inc., as well as versus stock-exchange rivals. This is “unwarranted given the structural growth of the industry,” according to analysts at JPMorgan Chase & Co.Bloomberg LP, the parent company of Bloomberg News, competes with LSEG to provide financial news, data and information.LSEG has lower profitability than rivals. But suppose it can boost margins and earnings, and then get investors to apply a higher price-to-earnings ratio to those profits. The jump in its market capitalization would be sizeable..Elliott hasn’t launched a public campaign. Behind the scenes it’s pushing for sharper performance and more ambitious share buybacks, the Financial Times reported. Schwimmer could address those demands by setting more challenging margin targets and telegraphing further stock repurchases on earnings day next week. Nearly £3 billion of yearly free cash flow means he can afford it.Still, it’s touch and go whether such shareholder-friendly actions would decisively lift the valuation. What if the main drag here is a conglomerate discount? LSEG presents itself as four main businesses; some analysts break it into more. All are complex individually, let alone as a collective. On top of that there’s a 51% stake in Tradeweb Markets Inc., an electronic-trading specialist. That represents nearly a quarter of LSEG’s market capitalization. It’s odd to have so much of a company’s value tied up in another listed entity..The benefits of simplification are well known: Management focus fosters better capital allocation and shareholders prefer singular investment stories.With a big train set, Schwimmer has multiple ways to bring greater clarity. A straightforward choice would be selling some of the Tradeweb stake, releasing stagnant capital and using the proceeds for buybacks.A more radical option would be separating the hefty data and analytics business and giving it a US listing, the standalone company then trading alongside its data peers. There would be no embarrassment in choosing a non-London home for this. The division’s implied price-to-earnings ratio within LSEG’s recent share price is just 6 times, according to JPMorgan. That’s well below where the competition trades in New York. There would be lost efficiencies from such a carve-out. But if the current group structure prevents shareholders from properly valuing those benefits, that’s moot.Maybe LSEG’s current structure is the right one. If so, Schwimmer needs to find another reason why it’s not showing up in the valuation.That leaves the AI millstone. Analysts following LSEG sound increasingly convinced that the company has strong defenses against disruption. They’re doing the heavy lifting on conveying that message. LSEG held a teach-in in November. But investor education on AI has become a constant battle demanding frequent and nimble communication.Normally the arrival of an activist is something to fear. This time Elliott’s stake building is clearly a vote of confidence in the resilience of the business. It also gives Schwimmer air cover to rethink LSEG’s strategy, just as if he were advising stock exchange leaders when he was at Goldman Sachs..© 2026 Bloomberg L.P.

A US hedge fund has made a risky bet on the London Stock Exchange: Chris Hughes

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