We are told that the rational part of the human brain, the prefrontal cortex, doesn’t fully develop until around the age of 25. One can’t help but wonder if the same phenomenon might also apply to investment markets. AIM, launched in June 1995, has just celebrated its 26th birthday. And it has been a tremendous coming-of-age year.
The initial shock of COVID-19 in spring 2020 saw very sharp price falls on AIM. Even in hindsight this is understandable: no one knew what it meant for a virus to indefinitely close the economy. Yet AIM’s quick recovery thereafter – and indeed positive return for 2020 as a whole – demonstrates (we would argue) that this market has now transitioned from adolescence to adulthood.
It’s not just that share prices recovered. Data published by the London Stock Exchange this month shows that existing AIM companies raised £5.3 billion of fresh capital in 2020 – the highest amount in over a decade – and that 2021 is on course to surpass that again. Whether for shoring up balance sheets or for acquisition spending money, right across the market cap spectrum companies have been able to raise cash from a willing and supportive shareholder base – even during a crisis. This is no speculative casino. It is a market that is working, for both company and investor.
There are just over half as many companies listed on AIM today as there were in the peak heydays of 2007, before the Great Financial Crisis taught the world that a viable business venture needed more than just a glossy prospectus and a prayer. Yet at the same time, AIM’s aggregate market capitalization today, at just shy of £150 billion, is a new record. Tighter listing rules, especially around the responsibilities of the NOMADs, have resulted in fewer but, we believe, far higher quality businesses. It is a case of quality over quantity.
There is no denying that AIM has had some difficult teenage years. And unquestionably there are still dark alleys in this market that are best avoided. Yet the past eighteen months have shown that AIM is growing up.