Thirty years for AIM: Uncertainty looms over the small-cap stock market with its "idealistic in essence" structure, potentially facing a dismal future.
The AIM, London's junior stock market, seems more fragile than ever as it celebrates its 30th anniversary. The bourse has faced less than impressive performance, reduced size, shrinking relevance, and fewer new listings, with only 650 companies left from a peak of 1,694 in 2007.
Launched in 1995 to fund ambitious scaling small- and medium-sized companies driving innovation, exports, and regional growth, AIM has been marked by feeble liquidity, overburdened costs, and disappointing overall performance. The AIM index has fallen 6.3% over three decades, while the FTSE All-Share and FTSE Small Cap Index have recorded gains of 454% and 559.6%, respectively.
Some believe AIM has had a less-than- impressive success rate in its mission to serve as an incubator for the main market or provide investors with exposure to high-growth UK companies. However, the market has raised £136 billion for over 4,000 companies and contributed £68 billion to the British economy and £5.4 billion in tax receipts in 2023 alone.
The government may be hesitant to let the market deteriorate further, considering its impacts on the economy and job market. An average AIM employee contributes over 50% more to the UK economic output than the national average.
Recently, the Government's drive for economic growth has focused on channeling more capital into UK assets, which appears to be a positive sign for AIM. The Mansion House Accord aims to infuse £50 billion into UK businesses and major infrastructure projects, with revitalizing AIM being part of its objectives.
However, potential tax changes in the Chancellor's budget could pose challenges. From April 2026, inheritance tax (IHT) relief for qualifying AIM shares will be halved, which may deter investors seeking to mitigate potential IHT liability. Some worry that weakening tax breaks could lead to a rush of money out of the already illiquid market.
Additionally, the newly announced PISCES platform for trading shares in private companies may erode interest in AIM, potentially leading to more companies staying private for extended periods.
To revive the ailing AIM market, proposals focus on regulatory clarity, market competitiveness, and incentivizing investment in scaling UK companies. Key recommendations include:
- Fully adopting the UK Listing Review reforms to modernize public markets
- Removing tax privileges from AIM to encourage companies to list on the main LSE
- Enhancing Business Assets Rollover Relief to foster serial entrepreneurship
- Coordinated regulatory and market ecosystem development
- Aligning tax incentives and investment structures to attract patient capital
- Cultivating a pipeline of investable UK companies
These measures aim to boost market liquidity, enhance market competitiveness, and recycle capital within the UK ecosystem for sustained growth and access to public markets.
- Property, finance, and businesses may find AIM more appealing with the government's drive to channel more capital into UK assets, as part of the Mansion House Accord's objective is to revitalize AIM.
- Despite AIM's successful history of raising £136 billion for over 4,000 companies, potential changes in the Chancellor's budget such as halving inheritance tax relief for AIM shares could deter investors, possibly leading to weakening liquidity in the already illiquid market.
- To tackle the fragility of AIM, proposals intend to modernize public markets, encourage companies to list on the main London Stock Exchange, and enhance tax incentives to attract patient capital, among other objectives.
- The introduction of the PISCES platform for trading shares in private companies could potentially erode interest in AIM, causing more companies to stay private for extended periods, which could further threaten AIM's relevance in the pension, stocks, and investing realms.
