Aim has missed its target – will it recover?

London’s Aim market turned 30 this month, but few are celebrating. The 1990s dream of an “accessible” venue to help small UK firms grow has gone largely unrealised, says Richard Evans of Fidelity International.

Listings on the London Stock Exchange’s junior market have fallen below 700, down from a peak of 1,700 in 2007. In the year to February, 61 firms left Aim and only ten joined. The FTSE Aim All-Share index has retreated 13% over the past five years.

Rather damningly, it is also in the red over 30 years “even with dividends reinvested” – the result, in part, of “numerous” victims of the dotcom bubble implosion in the early 2000s, and long-shot listings by tiny, high-risk commodity outfits.

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Despite some genuine success stories, the market’s reputation has been blighted by too many duds and “not a few scandals” – notably including accounting trouble at bakery Patisserie Valerie. Light-touch regulation that was supposed to be a selling point ended up attracting a “disproportionate” share of unscrupulous “company promoters”, including a handful of “outright fraudsters”.

Listing standards have been tightened in response, but the narrowing regulation gap between Aim and London’s main market has only made the former less appealing, says Ian Conway in Shares. The CEO of one unnamed Aim stalwart says the annual cost of maintaining a quote, including exchange fees, is “around £750,000”. Growing red tape consumes the time of small management teams.

All of this hassle just to secure a listing on a market with far worse liquidity than on London’s main board – “even on a good day, the bid-offer spread on many Aim stocks can be 10%-15%”, compared with “fractions of a percentage point” on the senior market. Another blow is coming in April, when Aim inheritance-tax breaks will be halved.

Radical solutions to fix Aim

Aim’s woes have become so profound that some reach for radical solutions. Last year a think tank proposed scrapping the tarnished Aim brand and merging it with the main market. But “Aim is worth saving”, says Rosie Carr in the Investors’ Chronicle. For all its failings, it remains a rare platform for nurturing British growth firms. Aim firms deliver £5.4 billion in tax revenue, and support 410,000 jobs. Britain already has a problem with helping promising start-ups to scale up. Scrapping one avenue to keep innovative firms on these shores would be self-defeating.

Could Aim investors enjoy a turnaround? The risks are high, but as James Henderson notes in the Financial Times, historically smaller and midsized shares have beaten the blue chips, delivering a 6% annual performance premium between 2009 and 2021. The recent run of large-cap outperformance may not last. Aim’s challenges shouldn’t be understated, but “we might reasonably expect some reversion to [the] mean”.

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