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When AIM was launched in 1995 it was hailed as a market where
small, fastgrowing companies could raise equity finance from the
large pool of capital available in the London financial markets.
AIM quickly established itself and it wasn't long before
institutional fund managers began to view the market as a source of
high-growth investment opportunities.
The evolution of AIM
Seventeen years on and AIM has progressed to become the
international market of choice for fast-growing companies and is a
real success story for the London Stock Exchange.
At its peak in 2007, a total of almost 1,700 companies were
listed. But challenging market conditions since then have meant
that there are now just over 1,100 companies. Despite this, with 90
new admissions in 2011, many exchanges around the world still look
to AIM with envious eyes. In fact, there have been numerous
attempts to replicate it in other territories – albeit
with little success.
AIM has moved from being a domestic exchange for small,
fast-growing companies to an international market dominated by
resource companies and investment funds, which make up more than
60% of the market between them. This transformation has been driven
largely by institutional investor appetite, with resource companies
favoured in anticipation of the rapid industrialisation of China
and South-East Asia.
Greater incentives for private investors
Small domestic trading companies are less favoured by
institutional investors unless they have a market capitalisation of
at least £25m, which is far in excess of the average
capitalisation of AIM-listed entities of £14m. The Government
is looking to these companies to generate the growth the economy so
desperately needs, so it has introduced significantly enhanced
incentives to enable private investors to fill the gap left by
institutions.
Most AIM companies will qualify for these enhanced incentives
provided that they have gross assets of less than £15m and
employ fewer than 250 people. They will be able to raise up to
£5m from Enterprise Investment Scheme (EIS) investors and
Venture Capital Trusts (VCTs).
The incentives for individual investors are considerable. Tax
relief of 30% is given upfront on the investment, capital gains tax
liabilities can be deferred, and if the investment is crystallised
at a loss then this will qualify for relief against the highest
marginal rate of tax for the investor, quite often 50%.
Additionally, the investment limit per individual will be raised
from £500,000 to £1m provided sufficient taxable income
has been earned in the year. All this depends on the investment
being held for a minimum of three years, so that the investee
company can benefit from stability in its shareholder base and can
take a more strategic and mediumterm view of its business
activities.
Will these measures help to reinvigorate the AIM IPO market?
They certainly have a chance. No doubt private client brokers will
look forward to offering their clients some interesting IPOs within
the next few months.
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The Risk and Regulation Monthly provides a summary of the key International, European and UK regulatory developments and pertinent regulatory activity affecting the Financial Services industry.
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