AIM Report 2019

48 49 CONFIDENCE INSTILLED: The new corporate governance rules instituted by the London Stock Exchange Group have had a positive influence on confidence in the AIM market and they have made it easier for advisers to recommend investing in companies quoted on the index. IMPORTANCE OF IHT: Inheritance tax is a big part of investors’ considerations when looking at the AIM market and while advisers acknowledge the tax tail must not wag the investment dog, the rising number of people affected by IHT means AIM-based BR solutions remain attractive. GROWTH FOCUS ACCEPTED: Managers, advisers and investors continue to see the potential of EIS and VCT after the risk to capital changes. CONCERNS PERSIST: Uncertainty and liquidity remain causes for adviser concern when viewing AIM (as well as other national and international markets). AIM INVESTMENT IS HERE TO STAY: The index continues to prove popular with both new and established companies. JG: All our prospects are linked to Boris delivering Brexit in the coming months. There is inertia everywhere and AIM is no different. There are very few new share issues. I believe that post-Brexit we will all put our best foot forward and re-unite in our efforts to improve the UK’s economy and every market will benefit as a result. SB: Although the backdrop of Brexit and tariff wars are unhelpful, there are some world-class businesses on AIM, and barring a few “darlings”, valuations look reasonable on a long-term view. So while there might be a few pitfalls on the way, we are cautiously optimistic about prospects. CM: The political landscape in the UK has been challenging. From an investment manager’s position it is complicated at best and frustrating at worst. Our AIM team believe that, in terms of growth rates, the UK and further afield across the globe have shown signs of slowing momentum; though despite this caution, pockets of value are still detectable in places for the medium to long-term investor. DA: The UK market is weighed down by negative sentiment surrounding Brexit. The UK economy looks strong on some measures, with decades of low unemployment, accelerating wage growth and tepid inflation. If the new PM delivers a smooth Brexit, we should see business sentiment spring back, also boosting market prospects. “The UK economy looks strong on some measures.” - DAN APPLEBY, BLACKFINCH INVESTMENTS “AIM does a tremendous job of providing capital to growth businesses in all market conditions.” - RICHARD POWER, OCTOPUS INVESTMENTS What do you think about the creation of a new Scottish stock exchange? Will it have an impact on AIM? SB: Not really. There are two reasons for this – AIM’s dominance in smaller companies and the under- representation of Scottish companies on the market, which may be a function of brokers reducing their presence outside London. DA: There’s nothing wrong with a bit of healthy competition! But it would take a lot to knock the LSE from the number one spot. AIM is the LSE’s junior market, unique in catering to small and growing businesses. There’s no other market like it globally, so we see little impact. JG: Anything that can support the growth of companies is a good idea. If this helps those companies in the regions take the first step in the listed journey, then it should be supported. The work done suggests that AIM companies are typically Southern centric. This and other incentives will only help raise awareness and the support for growing companies. CM: If the new Scottish stock exchange encourages entrepreneurship and helps innovative businesses to grow, then we believe this can only be a positive for economies in general. We are unsure what the eventual impact on AIM will be as yet, nevertheless we continue to monitor the situation. SD: We will follow the establishment of the new exchange with interest. Its success or otherwise will greatly depend on the quality and size of the companies which decide to list on the new exchange and whether HMRC will permit Business Relief to be available. We do not feel that this market is likely to have a material effect on AIM for the foreseeable future. RP: There have been many junior markets across Europe that have tried with little success to emulate what AIM has achieved, including some that no longer operate. There’s only a handful of Scottish companies and it’s not clear why they’d have any incentive to move from AIM. “Anything that can support the growth of companies is a good idea.” - JONATHAN GAIN, STELLAR ASSET MANAGEMENT How could the AIM market be improved? JG: There is a balancing act between supporting growing companies and the perception of over- regulation. Changes introduced last year on Nomads has and will continue to ensure companies are structured and follow consistent and verified due diligence. As ever, improving transparency of all disclosures for investors will always be welcome and must become the investments world’s number one focus – it’s not just a matter for AIM. DA: The recent accounting scandals of AIM-listed companies, including big names like Patisserie Valerie, have highlighted the risks of AIM investment. They have also raised doubts about the regulatory environment. AIM, if used correctly, offers great opportunities for growth and increased scrutiny of firm accounts, particularly from auditors, should protect investors. SD: We would always welcome new names to the AIM market to stimulate investor interest and to improve general liquidity. We would also suggest that increased audit and reporting requirements should be imposed on AIM companies once their market capitalisation reaches a certain threshold. This approach would not place an increased burden on fledgling businesses but will ensure that an AIM company’s governance grows in line with its value. RP: Leaving the market alone and not changing rules for the sake of change would be the best thing. Since it launched in 1995, AIM has flourished where other markets haven’t by slowly evolving and meeting the needs of companies and investors. CM: There could always be more stringent regulations; or at least, more rigorous enforcement of regulations. However, it is important to find the right balance of an appropriate regulatory framework without discouraging companies from listing. SB: We’d all like better regulation of AIM without dampening the market’s entrepreneurial spirit. What I’d like to see is more dialogue with market participants who are eager to see the market thrive. From an investor perspective, we have been increasing our engagement with investee companies about their corporate governance by regularly voting at AGMs and meeting non-executives where we feel standards need improvement. “It is important to find the right balance of an appropriate regulatory framework without discouraging companies.” - CHRIS MURPHY, WALKER CRIPS Market research / Industry debate Market research / Industry debate Moderator: Paul Jarvis, Intelligent Partnership MARKET RESEARCH CONCLUSIONS