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Evening Standard
Evening Standard
Business
Jonathan Prynn

London's AIM is already on its knees - and private markets will deliver the fatal blow.

City Voices - (ES)

The Alternative Investment Market (AIM) is no longer fit for purpose. Having been in decline for a long time, the current lack of liquidity and funding, low trading volumes, and erratic share price movements have deterred firms from listing. Some are even actively delisting in favour of going private.

In 2024, AIM shrunk to its smallest size in 23 years as 92 firms delisted. Only 695 companies are currently listed - a sharp contrast to the 1,694 quoted during the market’s peak in 2007.

Having failed to attract scaling and emergent businesses, AIM has also been left dependent on legacy firms, such as energy and finance stocks, which ultimately lack the high growth potential and appeal of more attractive sectors such as technology.

Combine this with the current exodus from the London Stock Exchange main market - facing its biggest net outflow of companies since 2009 and a projected 15-year low in new listings – and it’s clear the UK is facing something of a reckoning when it comes to the appeal of its public markets.

Even with improvement plans, from more advanced technology and slashing of the red tape, the burden of a public listing continues to act as a significant deterrent. Many firms now prefer to stay private and tap into the deep pockets of rapidly growing private markets.

Traditionally, companies went public to access larger pools of capital despite the high costs and complexity of the IPO process. However, in recent years, UK private markets have made strides forward, with improved liquidity and funding positioning them as viable competitors to public markets and allowing companies to stay private for longer.

Having unlocked these new pools of capital, private assets are growing at a rate of 20 per cent a year.

The US is well ahead on this front, with the alternative trading system (ATS) framework having led to deep and liquid private markets since its inception in 1998.

Private markets have also stepped up their efficiency game by finally following in the footsteps of public markets and adopting new technologies to digitise transactions. With this digitisation gap now closed, public markets are losing the solid upper hand they once held.

Recognising the shift towards private markets, the UK government has proposed a framework for a new Private Intermittent Securities and Capital Exchange System (PISCES) that will facilitate the trading of existing shares in private companies on an intermittent basis. This will provide investors with a standardised route to exit, reducing their investment risk and enable them to deploy even more capital into new private investments.

There will be no requirement for information to be disclosed to the public beyond the investors participating in the trading platform, and companies will be able to choose how they market their shares and who buys them.

Crucially, the Treasury confirmed in its initial consultation late last year that the trading venue will have lighter regulations, as companies looking to sell shares will not be subject to market abuse regulation or other cumbersome reporting requirements.

The framework is being pitched at institutions that want structured, standardised access to private markets and will enable more firms to stay private by creating a formal framework by which secondary trading of those companies' shares can take place.

All with the added benefit of avoiding the rigmarole of an IPO.

The thinking behind PISCES is that it will help companies scale up and prepare for future public listing, ultimately building a strong pipeline of IPOs that will bolster the UK’s capital markets.

The reality, however, is entirely different.

PISCES will certainly boost the UK’s capital markets, but it will not function as the motorway to an IPO that the government is hoping for.

By catalysing the UK private markets ecosystem and unlocking more capital to power investment and growth, PISCES will help position the private sector as a direct competitor to public markets.

Rather than preparing firms for a future listing, private markets trading platforms will emerge as advantageous alternatives to public venues such as AIM, which struggle to provide deep liquidity and are tarnished by arduous listing processes.

By embracing private markets, companies can remain relevant, tap into new pools of capital, and navigate changes in the financial landscape.

Having listed on PISCES and reaped the benefits, firms will see that IPOs are a headache and not worth the hassle. Even with the FCA’s plans for regulatory tweaks and efficiency improvements to AIM, the burden of public listing will remain a significant deterrent for many companies.

AIM is already on its knees and private markets will deliver the fatal blow.

Myles Milston is co-founder and CEO of Globacap

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