AIM ‘to shrink by 20%’, leaving firms uninvestable – Daily Business

London’s junior stock market is set to shrink by around a fifth this year as companies move to the Official List or go private, raising concerns over the ability of those remaining to raise institutional finance.

Sixty-one companies representing £12.3bn of market cap have announced plans to leave the Alternative Investment Market (AIM), according to data published ahead of its 30th anniversary next month.

Aberdeen Group is one institution that is supportive of the intentions of the Mansion House Accord to allocate 5% of their funds towards UK assets, including public companies beyond the FTSE 100 to help smaller firms.

However, it points to Peel Hunt research and Aberdeen Investments’ own in-house analysis, illustrating the shrinking universe of scalable opportunities on AIM.

Barely a week goes by without a new announcement of an AIM move to the main market, it says, with Serica a recent case in point. Ashtead Technology has confirmed it will move to the main market by the year end.  A total of 89 companies left the junior exchange last year, with just 18 joining.

Abby Glennie, co-manager of the abrdn UK Smaller Companies Fund and the abrdn UK Smaller Companies Growth Trust, said: “AIM was once a thriving market, but it has been brutally knocked back by outflows in recent times.

“As a result, we’re seeing many of the biggest and best AIM companies moving to a main market listing.

“From a fund manager perspective, it’s not the end of the world for us as it’s still possible to invest in those companies. But when thinking about the health of London’s junior market, it is a very ominous sign.

“Eventually we will be left with a tiny, illiquid market. That’s fine for small, individual investors but will make it very hard to get large-scale institutional money into the growth companies of tomorrow. In that scenario, we need to be asking: how are we going to nurture the next generation of big UK companies?

“A 30^th birthday is often a transitional moment, a time to re-evaluate, and it’s set to be no different for AIM. Our actions – or inaction – now will determine whether London’s junior market will still be around in another 30 years.”

Why save UK small caps?

A report by New Financial, sponsored by Aberdeen, last October highlighted how investment by UK pension funds into UK small caps has collapsed in recent years. It found that just one Local Government Pension Scheme has a specific allocation to UK smaller companies, compared with 18 back in 2013.

This is despite all the socioeconomic benefits that listed smaller companies bring to the UK, with their combined revenues of £170bn and workforce of more than 1.1 million people in the UK and overseas.

Companies on AIM made an economic contribution of nearly £70bn to the UK in 2023.

Ms Glennie added: “We support the sentiment of the Mansion House Compact in trying to encourage more pensions money to go into UK smaller companies. But expanding the compact to include AIM stocks will be meaningless if the AIM market shrinks to the point where it is un-investable for institutions.

“As companies move from the junior to the main market, AIM will decrease in market cap, liquidity, quality and breadth.”

She says the push to encourage pensions to invest more in UK smaller companies should include all UK listed companies outside the FTSE 100.

“That’s the only way we can revitalise our UK smaller companies market – which has been a powerhouse of UK domestic growth for so long.”

Aberdeen’s recommendations

In line with its response to the Government’s Pensions Investment Review call for evidence, at a group level Aberdeen believes there is a clear case for further consolidation of the Defined Contribution (DC) pensions market to invest in a wider range of asset classes that could support growth of the UK economy.

Aberdeen has recommended:

• Introducing financial incentives to encourage private investment to support UK growth – rather than mandating minimum allocations for pension funds

• For the Government to expand its areas of focus beyond venture capital and private equity to include smaller companies, private debt, real estate and infrastructure. These areas offer strong potential growth and are crucial to the long-term success of the UK economy