Aiming for Better Quality

Since its formation in 1995 the Alternative Investment Market has sought to provide easier access to capital for small, fast growing companies whilst also giving investors a piece of the action.

The market has been having a tough time in recent years, with 500 fewer companies listed at the end of July 2012 than they had in 2007. The Groups executives, however, maintain that this is because of an increase in their standards and the quality of companies they attract: “There has been a drop in numbers, but an increase in quality” says Sam Smith, chief executive of small-mid cap brokers FinnCap.
For investors this process of separating the wheat from the chaff has been difficult. The Aim 100 index has failed to keep up with the larger FTSE 100 since the end of 2007, seeing a 40 per cent decline over this period, compared to FTSE’s 10.

Despite this decline there are still a number of recent success stories, fashion retailer Asos floated in 2001 with a share value of 24p, which today stands at 1800p, a small investors dream. Since going public in 2008, Indus Gas has given original investors a return of more than 400 per cent.

Aim investments are typically seen as more high risk than fully listed companies, as there are less strict corporate governance standards. Regulators at the Securities and Exchange Commission have referred to the index as a ‘casino’. Liquidity is the biggest issue for many Aim investors, as the shares tend to be lacking in turnover. At the beginning of 2012 42.4 per cent of the index’s securities were traded less than daily, according to research conducted by the London Business School.

These concerns, however, are overplayed according to many; Peter Landau of Black Mountain, a silver miner listed on the index since July says: “Everyone whinges about liquidity on Aim. If you have the right projects you can create the liquidity”.

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