On Tuesday 16 June 2020, the QCA held its annual forum, with the event taking place for the first time in an online format. This year’s forum, Liquidity is Gold, delved into the age-old debate around how liquidity can be improved in smaller company stocks, as well as how companies can improve their investor engagement practices.
Please see below highlights from the session, featuring:
- James Ashton (Chair), Business Journalist
- Matt Butlin (keynote speaker), Head of Equities, Allenby Capital
- Adam McConkey, Chairman, QCA & Portfolio Manager, Lombard Odier
- Karis Alpcan, Head of Primary Markets and Competitiveness, HM Treasury
- Nike Trost, Senior Manager - Markets Policy, FCA
- Marcus Stuttard, Head of UK Markets and AIM, London Stock Exchange
Our webinar keynote speaker, Matt Butlin of Allenby Capital, started proceedings by giving an overview of AIM and recent market performance. He started by stating that the total number of companies on AIM has decreased over the last ten years. Whilst this is not necessarily a bad thing, with the quality of the companies on the market improving, the increase in regulation, rise in costs and the relative attractiveness of private equity has contributed to the decrease in number of companies.
In recent years, AIM has become a more UK-centric market, due, in part, to the greater ease of performing due diligence and the lower risk associated with investing in UK companies. However, the diversity of companies on AIM is still evident. Average market capitalisation has increased to over £100 million, but there are still over 500 companies on AIM with a market cap below £50 million and a plethora of companies from a whole variety of sectors.
The attention then switched to our representatives from the regulators and exchanges to explain how they are supporting the markets.
Our speakers spoke of their ongoing commitment to the SME agenda due to their importance to the UK economy in driving growth and innovation. There is a need to ensure that companies have sufficient access to capital, with equity, as opposed to bank financing, crucial to improving economic growth. There has already been significant steps taken, for instance, through allowing AIM shares to be held in ISAs, the abolition of stamp duty on shares admitted to AIM, as well as, at the EU-level, creating a proportionate regime for the Prospectus Regulation and SME Growth Markets. However, it remains the responsibility of the regulators and HM Government to play a role in addressing the challenges of liquidity, with Brexit providing the opportunity for this.
The discussion then moved on to the period of significant uncertainty currently being experienced. However, it was mentioned that, despite this uncertainty, what has been striking is how resilient the markets have been to the crisis. This is something that has been characteristic of AIM from its inception in 1995, with the market demonstrating its resilience through the dot com boom, the financial crisis and now. There is recognition amongst investors of this and the quality of the companies that reside on AIM. As retail investors playing an increasingly important role in providing liquidity, companies need to be asking themselves important long-term questions, such as whether they have the right capital structures and whether they have the right level of indebtedness in order to improve their prospects of liquidity.
Following this, our speakers commented on the regulatory interventions that were introduced at the onset on the crisis. These measures were introduced in order to ensure that companies could continue to gain access to capital as well as minimise the impact of the pandemic on companies, such as through the relaxation of working capital statements, amongst others. It was stressed that the regulators wanted to see fund managers invest in a whole range of companies, including SMEs, who are of particular importance during the current pandemic.
Finally, QCA Chairman, Adam McConkey, spoke of his desire for AIM to be maintained and expanded. From the company perspective, the greater the liquidity there is, the greater the possibility there is for capital raising. Having access to capital, particularly in the smaller cap space, helps to facilitate the creation of jobs and wealth across society.