As we approach the Autumn Budget led by a new Labour government, I am reflective of the successes and the difficulties over the last 12 months. This time last year we were at a crossroads and we recognised that fiscal change was essential to keep our UK equity markets alive.
A year ago, the ink was still drying on the Mansion House Compact, a commitment made by pension providers to allocate 5% of assets to UK growth companies. There was also chat of a British ISA to encourage private investors to dip more of their Big Toe into the UK equity market.
But a year on, it is easy to feel despondent with slow movement on the Mansion House Compact – which had set its sights for 2030 – and the decision that the British ISA is too difficult to administrate.
It seems that the attention which should be directed at companies trading on AIM and AQSE is now directed into already well-funded start ups and large caps.
At the QCA, we are here because we need to keep the focus on UK small and mid-caps. Our community is one of innovators, of experts, of doers – companies flanked by their supporters and investors. Some of our network has been around for a long, long time and I am intensely proud to be part of this. But what I am most proud of is the voice of our community.
We are attracting attention.
Focusing on growth
The good thing is that there is only one thing to focus on. Demand. It is a simple equation. Demand equals liquidity and liquidity equals growth. And at the QCA, we are driving the Demand initiatives. We have made progress.
For instance, the FCAs long-awaited revamp of the listing’s rules as well as the Pension Fund reforms are nudging ahead – and we are there to help with some of their structural issues.
But we still need funds flowing and this is not happening yet.
I can understand the pressures faced by investors. A wealth manager in our network has told me how his multi-million-pound client wanted to put his money into cash ahead of the budget. This effectively means he would have been divesting from the small and mid-caps which we believe in, because he was scared. That’s the reality.
Only the Budget, and a commitment to support UK smaller companies will persuade him – and others like him – not to divest. We need to remove that uncertainty barrier and we can only do that by making it very clear that the UK supports UK investment. Other countries support their national companies. We don’t.
Meanwhile, we hear headlines that can leave you feeling a bit disenfranchised: AIM companies have seen the average value of daily trading in their shares fall 15% in a year.
Yet, we fight on, and I will tell you why.
Remember what matters
In my day job I am a Fund Manager. I invest in small companies and I love it.
Investors can tend to live in ivory towers – meeting companies and trading their stocks. But a great – and sometimes hard part of my job is eyeballing and meeting our underlying investors.
A defining meeting for me was a one with a retired Doctor near Kendal. We bumped across the moors to a remote hamlet, knocked on the door and were invited in for a cup of tea (and a soggy biscuit). We spoke in hushed voices as his very ill wife was in the room next door. He took his portfolio valuation, put it on his knee, and looked at me and asked me what I had been doing.
I fumbled. This was real, not just a spreadsheet or a Citywire rating. I told him about performance, the markets. He stopped me and said “No – tell me about these companies, what they do, why you think they are good?”.
Talking about the portfolio, for me, is the comfort zone. I waxed lyrical about Gateley, a leading UK Legal firm based near Dudley, I gushed about 1Spatial, the Cambridge based software business delivering location data for government and infrastructure, I rabbited on about Cohort – a Bracknel based defence company that is a world leader. I boasted about Ramsdens, a pawnbroker based in Middlesborough who has £12m cash on its balance sheet.
After a bit, he put his hand up. “No need to say more – this is great – you are investing in some world beating companies, right here in the UK. You are making money for me, and I know I am supporting the right type of business. But remember, don’t stop making money for me!”.
The retired Doctor in Kendal made it strikingly clear that sometimes, we forget the quality of what we have right on our doorstep. And regulators and governments need to remember this too.
Let’s liberate investors and not give them the Fear when they think about investing in UK equities. Because we seem to be doing with regulation – Consumer Duty, Treat Customers Fairly and an obsession with Cost over Returns. The Kendal Dr gets it – he knows what risk is, and he is allocating his portfolio accordingly.
Our economic ecosystem
There are lots of statistics on why markets are so important to the UK economy, and vital for growth. So let me break it down.
We are an ecosystem.
From British press such as the Financial Times, Investors Chronicle, Daily Mail, Sunday Times and Bloomberg. To HM Treasury and members of the House of Commons. To the London Stock Exchange and AQSE. To The Takeover Panel, the Financial Reporting Council and the Financial Conduct Authority. Our ecosystem also includes company advisers, the lawyers and accountants. Investors too.
But the driving force are the companies themselves:
- They have a combined market capitalisation of £5.2bn.
- They generate £4.2bn of revenues
- Over the last year, they have generated returns of 14.43% against FTSE AIM index up 6%, and the FTSE All Share up 9%
Our ecosystem makes the UK economy tick. Small and mid-cap companies are its backbone, they create jobs, and they create growth.
Looking forward
Our aim at the QCA is to now turn our good initiatives, into great ones. This is the Pursuit of Demand. Creating more investors.
And we are doing that by focusing on:
- The pursuit of the Mansion House Compact and pension reform
- Stamp duty reform
- Leaving Business Property Reliefs alone for AIM and growth companies
- And have a proper look at the ISA – surely we can’t think that leaving £300bn in cash ISAs, not in the UK market is a good thing? No other country allows that.
I almost envy Rachael Reeves and this new Government – creating growth is laid out on a plate! These are easy wins.
But I do fear a knife edge: creating a tax change without full consideration of the unintended consequences. It is easy to talk about this when we know the detail, but the good thing is I know facts count with Treasury and Rachael Reeves and to tamper too much with Business Relief and IHT reliefs will permanently wipe billions of the AIM Market: Peel Hunt estimates over £10bn.
Maths says that it could wipe 30% off UK small and mid-cap markets in a swoop.
Patient Capital shouldn’t be branded as Patient Capital because we must wait a long time for deployment. We need to get on with it now. Let’s allow the Demand that is already latent, to create liquidity.
One word of warning
Whilst there are many great works being designed to fix our capital markets, we can’t just hope that the latest think-tank idea or government initiative will float all boats. Sure, the UK capital markets would benefit if more global companies came to the UK, but corporations are mobile now and so is capital. Let’s not be naive about this.
We must have international appeal.
But the secret to our success is not tourism, it’s agriculture. I will explain.
The QCA seeks bottom-up solutions to repopulate the markets and draw back investors.
If you want a fresh crop of companies in the FTSE 100 in a decade or so from now then let’s grow our own – and the UK economy will reap the benefits. We have them already in our network. We have revenue generating companies of sub £1m and also £200m+. Let’s not forget the smaller end of the market – lets incubate it.
As you may tell I am passionate about the UK equity cause. It’s because I see the wheel of growth turning every day.
Join our cause
To continue the good work of the QCA, we need more members. We can’t lobby, we can’t educate without you.
The QCA is a not-for-profit organisation, and we are a lean mean machine. All our profits are ploughed straight back into championing the cause for growth companies. It is not often that happens in the City.
This year we’ve welcomed more investors, brokers, registrars and consultants to the membership.
And we are great value for companies – about £50 a week. Our companies now trade on AIM, Aquis and the Main Market right up to the FTSE250. This club is widening and we invite more to join.
I will soon be visiting that Dr in Kendal and his now recuperating wife, and I will be telling them what part our ecosystem – the companies, the UK government, the regulators and investors – have had played in making growth happen.
Both in the UK but also his portfolio. And I know he will call me to account.
Remember – we can’t afford anymore crossroads.
2024 needs to be the turning point. UK Small and Mid-cap can drive the growth agenda but Government and policy makers need to help us too.
