Let retail investors help aid a rapid recovery
Since lockdown began, there has been a trend of companies acting to build up their reserves through equity fundraises — with over £10bn raised since the pandemic began.
However, the vast majority of these fundraises have so far not been open to retail investors.
While companies urgently need liquidity now more than ever, neglecting to properly include retail investors, many of whom are shareholders, carries significant consequences for the UK’s listed companies, and for the national economy.
Why? First, because retail investors tend to focus their investments on the small to mid-cap growth businesses. These account for roughly half of GDP, and will be central to the UK’s recovery as it emerges from the crisis.
According to a recent Economist Intelligence Unit report, while retail investors own 13.5 per cent of the wider market, they own close to 30 per cent of shares listed on AIM — the mid-cap growth index that celebrates its twenty-fifth anniversary today.
It is a shame, then, that the anniversary of an exchange that has empowered so many retail investors to back growth businesses (this year 158 companies raised over £1.9bn in follow-on capital on AIM) is currently being marked by a lot of them being denied precisely this chance.
Second, retail investors provide vital liquidity and are more likely to be loyal investors, committing their capital over a longer-term horizon relative to institutional investors.
The economic upheaval currently facing the country cannot be understated. This is a far greater challenge than even the one presented by the 2008 global financial crisis — not just in terms of the speed of its onset, but also in terms of its scale. Britain’s economy shrank by a record 20.4 per cent in April, and despite the speedy implementation of emergency measures by the government, company revenues are collapsing at a far faster rate.
Now, according to the OECD, out of all major nations the UK is expected to be the country worst hit by the coronavirus pandemic this year. The British economy is forecast to suffer an economic drop in the range of 11.5–14 per cent in 2020 — far greater than the worst-case-scenario 7.6 per cent slump predicted to affect the global economy, and greater still than the six per cent lost from 2007 to 2008.
Given these adverse conditions, every pool of capital should be being utilised. Instead of being deliberately excluded, retail investors should be actively courted to back new equity issues.
They have already demonstrated that they are keen to invest. In fact, in recent weeks retail investment represented over 20 per cent of the volume on the FTSE All Share, with 60–74 per cent of this volume being buy orders. UK stockbroking platforms are also reporting over three-fold increases in new account openings — likely a sign of numerous new investors looking to capitalise on undervalued shares.
Finally, not only is the exclusion of retail investors counterproductive, it is also unnecessary. The technology now exists to run a retail offer as part of an accelerated fundraise with no delay to the issuance timeline or impact on pricing. One example is PrimaryBid (a finnCap investee company), which has partnered with the London Stock Exchange to do precisely that.
The overriding message during this period of national crisis is that we are all in this together. This a sensible approach both to Covid-19 and to fundraising.
The more money we can supply from the broadest pool of capital possible, the more UK businesses can be supported, and the faster will be our eventual recovery.
And that is in all our interests.
Main image credit: Getty