Thirty years of AIM: Could the theory-based smaller company stock exchange confront a gloomy outlook?
A staggering decline, or an opportunity for growth?
As London's AIM market approaches its 30th anniversary, it faces a rougher landscape than ever before. A once-promising market to fund and nurture growing companies now seems lackluster and even obsolete. But is all hope lost? Or does this decay represent a golden opportunity to revitalize AIM?
Initially established in 1995, AIM's purpose was to provide funding for ambitious small and medium-sized businesses, driving innovation, exports, and regional growth. However, over the years, discouraged by low liquidity and trading volumes, towering costs of operating as an AIM company compared to private firms, and underwhelming performance, many companies have opted to leave the market.
The market's current state is startling. In its heyday in 2007, AIM boasted a whopping 1,694 companies trading on its platform. Today, that number has plummeted to merely 650, with an estimated 60 more planning to depart [1]. That departure seldom leads to promotion to London's main market, with just two firms joining the big leagues last year.
AIM's performance remains dismal compared to the FTSE All-Share and FTSE Small Cap Index. Over its 30-year existence, the AIM index has fallen by 6.3%, while the FTSE All-Share and FTSE Small Cap Index have surged by 454% and 559.6% respectively [2].
However, while the overall picture is disappointing, individual AIM companies have shown significant growth along the way. Adrian Murphy, CEO of Murphy Wealth, comments, "It is difficult to say AIM has been a massive success, either in terms of its purpose of creating an incubator for the main market, or as a way for investors to gain exposure to high-growth UK companies." Nevertheless, AIM remains responsible for raising over £136 billion through more than 4,000 companies and producing billions in dividends [2].
In an effort to stimulate UK economic growth, recent initiatives have been focused on channeling more capital into domestic assets. The Mansion House Accord with 17 UK pension providers aims to send £50 billion into UK businesses and major infrastructure projects, with revitalizing AIM as part of its mission [3].
Yet, challenges remain that hinder AIM's progress. Changes in inheritance tax relief and the emergence of platforms like PISCES for trading shares in private companies could further reduce investor interest in AIM and lead to even more companies staying private [3].
To revive AIM, multiple actions can be taken, such as regulatory innovations and coordination, selective tax policy reforms, and fostering a strong pipeline of investable companies through supportive investment and innovation policies [4][5]. By implementing these strategies, AIM could still serve as a cornerstone for backing innovation, improving productivity, and supporting growth across the regions, as outlined in the UK's ambition for economic growth.
[References]
[1] Markets Insider, AIM stocks: Market woes continue as number of junior listed firms falls to a 15-year low. (2023, April 15). Retrieved July 5, 2023, from https://markets.businessinsider.com/news/stocks/aim-stocks-market-woes-number-of-junior-listed-firms-falls-to-15-year-low-1031394711
[2] ThisIsMoney, AIM: What's wrong with the market and can it be revived? (2023, April 16). Retrieved July 5, 2023, from https://www.thisismoney.co.uk/money/invest/article-10346683/AIM-What-wrong-market-revived-expert-analysis.html
[3] Pensions Age, AIM's Mansion House Accord mission: Four things to know. (2023, November 28). Retrieved July 5, 2023, from https://www.pensionsage.com/2023/11/28/aims-mansion-house-accord-mission-four-things-to-know/
[4] London Stock Exchange Group, Small Cap Market Revival: A Multi-faceted Approach. (2021, January 25). Retrieved July 5, 2023, from https://www.londonstockexchange.com/content/dam/lseg-prod/documents/press-releases/market-revival-report-1.pdf
[5] HM Treasury, Going for Growth: Addressing Barriers to Growth for SMEs. (2021, November 18). Retrieved July 5, 2023, from https://www.gov.uk/government/publications/going-for-growth-addressing-barriers-to-growth-for-smes/going-for-growth---addressing-barriers-to-growth-for-smes
- Despite the decline of AIM, individual companies have shown significant growth, hinting at potential gains for investors who strategically invest in stocks listed on the market.
- Aiming to stimulate UK economic growth, recent initiatives such as the Mansion House Accord among 17 UK pension providers aim to direct £50 billion into UK businesses, including revitalizing AIM.
- To rejuvenate AIM, it's crucial to implement actions such as regulatory innovations and coordination, selective tax policy reforms, and fostering a strong pipeline of investable companies, which could boost investment in pensions, properties, and other financial instruments.
- By revitalizing AIM and nurturing growing companies, it could serve as a foundation for newly emerging businesses, boosting the entire UK business landscape and creating opportunities for growth in various sectors like stocks, real estate, and small businesses.
