The junior share market, Aim, should be scrapped as part of radical measures to help the London capital market attract and retain more technology-based world beaters of tomorrow, two think tanks have recommended.
The former Alternative Investment Market was “not fit for purpose” and had failed to attract, nurture and provide scale-up capital to the most promising fast-growth companies, according to a joint report from the Tony Blair Institute for Global Change and the centre-right think tank Onward.
It should be merged with the main market of its parent, the London Stock Exchange, with qualifying companies entered into a new fast-track category which would continue to benefit from the same tax perks enjoyed by Aim stocks.
The recommended axing of the junior exchange came alongside other proposals including taxpayer-funded subsidies to help pay City analysts to cover smaller stocks and reforms to governance rules to make it easier to give pay rises to listed company bosses.
A £1 billion publicly-funded “growth capital fund”, which would seed the creation of five late-stage venture capital funds to plug the gap left by VC funds unable to finance businesses of substantial scale but not yet ready for flotation, was also recommended.
London was suffering from “a chronic inability to support scale”, the authors said. “Bold reform is needed — and needed now. Every day, the global race to discover and bring to market the innovations of the future gathers pace. If the UK does not revitalise its markets, invention and talent will go elsewhere.”
Aim was founded in 1995 as a way of enabling young companies to list and raise capital more cheaply and with fewer restrictions than a full LSE listing required. Today it has 704 member companies, compared with more than 1,100 in 2015.
While it has had some notable successes including the airline company Jet2 and Fevertree Drinks, it has also played host to a string of disappointments and the occasional fraud. Overall returns to investors have been very poor.
Liquidity was low on the market too, according to the report, while analyst coverage for most stocks was non-existent. Listed companies on Aim faced too many disclosure requirements while active stockpicking fund managers who still bought Aim stocks were losing ground to tracker funds.
Fevertree Drinks, which floated ten years ago, has a market capitalisation of £883 million
IAN GEORGESON/FEVERTREE
London could be a natural home for companies across the UK and Europe wanting scale-up capital, with a robust ecosystem of sympathetic fund managers and deal professionals, according to the report.
It acknowledged a previous attempt by the LSE to create a “high-growth segment” in 2014 had failed, but said a “special listing route” on to the main market for high-growth companies in emerging technology sectors should be introduced.
Shares in these companies would be exempt from capital gains tax and from the normal stamp duty imposed on purchases of ordinary UK shares. They would also qualify for inheritance tax benefits as would existing investors in Aim shares transferring to the main market.
A spokesman for the London Stock Exchange Group (LSEG), which owns both the London Stock Exchange (LSE) and Aim, said LSE was “hugely proud of and committed to Aim. Over the past 30 years, it has been one of the world’s most successful and established markets for dynamic high-growth companies supported by a remarkable community of companies, advisers and investors. Aim plays a vital role in the funding continuum and we do not support the idea that it could be combined with the main market.”
Charles Hall, head of research at the corporate broker Peel Hunt and a cheerleader for City rejuvenation, said some of the suggestions had merit. “The reality is that Aim has worked as a market, but needs revitalisation to thrive.”
The latest proposals come in the wake of changes to the listing rules to attract more tech company founders to London and before potential reforms to encourage UK pension funds to allocate more capital to listed and unlisted UK companies.
