On 19 June 1995, the London Stock Exchange launched the Alternative Investment Market (AIM), a market for ambitious small businesses that were previously excluded from listing on the public market. On the first day of trading, the collective value of the ten listed companies was £82m. In the past two decades, the market has welcomed more than 3,500 companies and now enjoys a market capitalisation of close to £75bn. However, while this may sound like an indisputable success story, critics feel that there’s room for improvement.
Time to celebrate£82m
The collective value of the ten companies listed on AIM on the first day of trading
In an opinion piece for
City AM, Xavier Rolet FCSI(Hon), Chief Executive of the London Stock Exchange, believes the UK should view this milestone as a symbol of incomparable success.
AIM has become the world’s leading growth market, writes Rolet, without any significant competitors. “Vital to AIM’s success has been its ability to evolve to meet the changing needs of companies and investors over 20 years,” he continues. This flexibility has allowed the market to weather numerous business ‘booms and busts’, which have resulted in stagnation or collapse in other growth markets,” he said.
“AIM’s 20th anniversary is the right time to make sure that we, together as a financial community, make every effort to build on the success of the market, for companies, the British economy and the UK’s status as home to a premier global financial centre,” he added.
City AM comment
Losing out
But Claer Barrett and Kate Burgess take a more holistic view. The
Financial Times writers point to research that reveals nearly three out of four companies to have listed on the growth market have lost shareholders money.
According to research conducted by professors at the London Business School, 72% of businesses to have listed failed to produce returns for investors, while nearly one third have lost shareholders 95% or more of their initial investment. Of course, the word 'alternative' in AIM's name points to the fast-growth nature of businesses that list on this market – they are inherently more exposed to potential loss.
Barrett and Burgess attribute the market’s apparent success to a small number of very fruitful returns. “In a market characterised by extremes in performance, what keeps investors coming back to AIM are the 39 companies in the index’s short history that have produced a return in excess of 1,000%,” they explain.
Financial Times opinion
Skewed views
The article by Barrett and Burgess has given Algy Hall food for thought. In a blog for the
Investors Chronicle, the Sectors Editor considers why such questionable performance has gone largely unnoticed.
“Studies by psychologists show that our minds have a propensity to over-exaggerate the occurrence of the most attention-grabbing events we observe,” Hall explains.
“By definition it is AIM's success stories that are more likely to attract our attention as they become large and important companies that are hard to miss, compared with AIM's failures that quietly disappear. As Nobel Prize winner Daniel Kahneman puts it in his book
Thinking: Fast and Slow, ‘overconfidence is fed by the illusory certainty of hindsight’.”
Investors Chronicle blog
But with examples such as the online fashion retailer ASOS turning £1,000 invested at its 2001 AIM float into £162,000 in 2015, and AIM's value growing from £82.2m at launch to its peak of £97.6bn in 2007, there is still much to celebrate.
Seen a blog, news story or discussion online that you think might interest CISI members? Email joanna.lewin@wardour.co.uk