AIM Industry Report 2017/18

24 25 TARGET DIVIDEND It is uncommon for an AIM-based investment to state a numeric annual return target; instead, a majority of the managers aim to outperform a particular FTSE AIM Index. Three open offers on our register state a specific target return and the targets stated vary considerably – the smallest target return is 1.5% while the largest is 10%. A target dividend is quoted by a higher number of open offers (eight) including two VCTs and six BR products. Target dividends range from 1% to 6% with VCTs leading the higher end of the range. It is not a surprising observation as income generation is one of the main features of investing in VCTs, whereas BR products are more focused on capital preservation. This lack of stated return/dividend target means that there is a lower degree of guidance provided by AIM-based investments, and a fund’s performance will generally be linked to the overall market. However, AIM investment managers typically avoid stocks in some of the more volatile sectors and companies with a very small market capitalisation to mitigate the risks. KEY INVESTMENT METRICS KEY METRICS AVERAGE MODE MIN MEDIAN MAX ANNUAL TARGET RETURN 6.73% N/A 1.50% 8.70% 10.00% MINIMUM SUBSCRIPTION £48,459 £100,000 £2,000 £40,000 £100,000 CURRENT FUNDRAISE £77,107,968 £9,100,000 £750,000 £13,400,000 £487,504,000 TARGET NO. OF INVESTEE COMPANIES 29 20 10 25 74 TARGET DIVIDEND 2.91% 2.50% 1.00% 2.50% 6.00% ANNUAL MANAGEMENT CHARGE This chart shows the distribution of the AMCs quoted by open offers. The purpose is to show our readers how many open offers are charging each of the fees and at what levels; hence we keep the offer names anonymous. Annual management charge (AMC) is by far the most commonly stated fee by AIM managers in the tax efficient space, similar to non-AIM tax efficient investment managers. In fact, it is quoted by all the open offers. In addition, AMC is also the largest fee on average (1.34%). AMC ranges from 0.80% to 2% with 1.5% being the mode value. Advisers are reminded that when an offer states an AMC, it is charged every year on the investment’s NAV regardless of performance, therefore it is important to choose a fee level that they and their clients are both comfortable with. DEALING Unlike unquoted investment opportunities, for which the initial charge is frequently quoted, a dealing charge is more often seen among AIM-based products. This may be because AIM managers do not need to make as much effort sourcing investee companies as managers of unquoted businesses since all the available investment opportunities are quoted on the LSE and accessible to the public. Instead, in most cases, AIM managers have to pay an execution fee to stock brokers to place trading orders, for both buying and selling. The initial deal fee and the exit deal fee are quoted by 58% and 52% of the open offers respectively, making them the second and third most commonly quoted fees. A majority of the open offers charge a dealing fee of 1% and there are a number of offers that quote a fixed amount for each trade. For such offers, we derived a percentage by dividing the fixed amount with the offer’s minimum subscription. The average exit deal charge is 0.42% which is slightly higher than the average initial deal charge of 0.37%. In addition, the exit deal charge also has a larger range than the initial deal charge. INITIAL CHARGE The initial charge is quoted by 48% of open offers making it the third most quoted charge after the AMC and dealing charges. The initial charge is normally deducted from an investor’s initial subscription and the amount deducted is not invested, so only the remaining amount will qualify for tax reliefs (given the investment meets all other criteria). The initial charge is percentage- based so the larger the initial investment, the higher the initial charge. There is a wide range of initial charges quoted among open offers, ranging from 0% to 3%. The average initial charge is 0.7% (including offers which apply no initial charge). “With AIM now having successfully raised £100 billion of new capital for companies, it has now firmly established itself as the world’s most pre-eminent growth exchange.” — SAM BARTON, CLOSE BROTHERS ASSET MANAGEMENT “The AIM market has become the benchmark for growth markets worldwide, offering an important source of capital for small and innovative companies.” — JON GOULD, PSIGMA INVESTMENT MANAGERS 0% 0.2% 0.4% 0.8% 1.2% 1.4% 1.6% 1.8% 1% 0.6% EXIT DEAL FEE 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 0% 0.2% 0.4% 0.8% 1.2% 1% 0.6% INITIAL DEAL FEE 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 INITIAL CHARGE 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 0% 0.5% 1% 2% 3% 3.5% 2.5% 1.5% 1 2 3 4 5 6 7 8 0% 1% 2% 5% 6% 4% 3% TARGET DIVIDEND 30 29 28 27 26 25 24 23 23 22 21 20 19 17 16 15 14 13 12 11 10987654321 18 31 £0 £100,000 £90,000 £80,000 £70,000 £60,000 £50,000 £40,000 £30,000 £20,000 £10,000 MINIMUM SUBSCRIPTION MINIMUM SUBSCRIPTION The minimum subscription is the minimum amount an investor needs to contribute up front to acquire shares in a managed service. The average minimum subscription is £48,459 and the range is from £2,000 to £100,000. In contrast to the pattern for target dividend, BR products generally have significantly higher minimum subscriptions than VCTs. From the chart we can see that the market can accommodate investors of different wealth levels and offers investors with less than £100,000 the opportunity to diversify across multiple providers. ANNUAL MANAGEMENT CHARGE 0% 0.5% 1.5% 2.5% 2% 1% 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 31 19 17 20 21 22 23 24 25 26 27 28 29 30 18 16