AIM shows signs of life as it celebrates its 25th birthday
As AIM prepares to celebrate its 25th anniversary today, the junior market is proving remarkably resilient and adaptable.
Faced with Covid turbulence, AIM has so far performed well in comparison to other markets, helping to cushion investors from the worst effects of the downturn.
In the first five months of 2020, the AIM all-share index lost just nine per cent of its value, as opposed to 21 per cent on the FTSE all-share index. And last month, AIM shares rallied by 10 per cent, while the FTSE all-share rose by just five per cent.
AIM trading volumes have also been strong. The total number of trades rose by 50 per cent year-on-year in the first five months of 2020, while the market helped raise almost £2.2bn in new money.
While AIM growth was once driven by natural resources, recent events have spurred investor interest in the life sciences sector, where the values of some firms involved in coronavirus vaccine research and testing have rocketed. Some may even be destined to become the titans of tomorrow.
Healthcare companies have also benefited from new funding totalling some £460m, a fifth of all new money raised across the index, helping to fund research of enormous public benefit.
Of course, while AIM’s recent resilience has been notable, the last 25 years haven’t all been plain sailing.
After launching with just 10 companies with a combined value of £82m in 1995, the market grew rapidly. By 2007, it was home to 1,694 companies valued at close to £100bn.
Since then, the number of AIM-listed companies has almost halved. Fewer companies have sought to go public due, in part to the increasing allure of private equity. However, those that remain have significantly higher market caps on average than in previous years — a sign of a more mature market.
While AIM has helped propel some household names into the big leagues, earning healthy returns for their backers, other investors have had their fingers burned. Critics have pointed to failures in corporate governance and a lack of transparency and regulation.
However, while some criticism has been justified, these governance issues have only impacted a very small number of companies passing through AIM. Recently, there have been vast improvements in the standards of reporting and corporate governance — and as the leading auditor to AIM-listed companies we should know.
Indeed, many AIM-listed firms go beyond the minimum requirements. One third of FTSE AIM 100 companies now adopt the stricter FRC governance framework in their reporting, while most of the other two thirds follow the more proportionate QCA code. These standards are far higher than in other comparable junior markets.
So 25 years on, AIM is adapting well to new circumstances — while continuing to fulfil its dual role as a capital raising platform for entrepreneurial companies with high growth potential and as an essential venue for risk capital, an important element of any investor’s portfolio.
The junior market will never be a safe haven, and investors have learned that AIM-listed companies may offer higher risk and potentially higher reward.
But for the right companies and the right investors, there could be many happy returns.
Main image credit: Getty