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“If AIM was just a casino it wouldn’t have lasted 20 years”

Last updated: 10:40 19 Jun 2015 BST, First published: 07:00 19 Jun 2015 BST

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The market has faced accusations of luring companies by side-stepping the heavier regulation imposed by some rivals

London’s AIM market for smaller companies has faced its fair share of brickbats since it launched two decades ago.

Former US Securities and Exchange Commission member Roel Campos in 2007 famously described AIM, which celebrates 20 years of trading on Friday, as being "like a casino".

The market has attracted accusations of luring companies by side-stepping the heavier regulation imposed by some rivals.

Critics also point to AIM companies that have taken a tumble, such as Chinese sportswear brand Naibu Global International (LON:NBU).

Naibu said last month it expects to cancel its AIM listing on Monday after the company’s chairman and executive director went missing in February.

But Marcus Stuttard, head of AIM, is having none of it.

He claims the market allows small firms to access capital and grow without the paperwork faced by blue-chips.

“If AIM was just a casino it wouldn’t have lasted 20 years,” Stuttard told Proactive Investors in an interview to mark the market’s 20th anniversary.

“We take it as a compliment that people are so focused on us globally.”

The London Stock Exchange (LSE) started AIM 20 years ago to encourage investment in start-ups and go-getting young companies.

It began on June 19, 1995 with 10 companies worth a total of £82.2mln.

It now has 1,074 companies, of which 864 are British and the rest international, valued at a combined £75.3bn.

The market reached a peak in 2007 when there were 1,694 companies listed worth £97.6bn.

Fans of AIM point to the likes of fashion group Asos (LON:ASC), Domino’s Pizza (LON:DOM) and Majestic Wine (LON:MJW) as examples of firms that have used it as a springboard to success.

Domino’s launched on AIM in 1999 and is now listed in the FTSE 250 Index, with every £1,000 invested in the company at launch now being worth £36,000.

But critics say the performance of the AIM index compares poorly with indices such as the FTSE 100, FTSE 250 and the FTSE Small Cap.

Laith Khalaf, senior analyst at Hargreaves Lansdown, said AIM has fallen 24% since its launch in terms of price return.

In contrast, the Footsie has seen returns of 82%, the FTSE 250 is up 344% and the FTSE Small Cap has increased 138%.

Khalaf said AIM was not a market for investors to buy in bulk in the same way they may do with the FTSE 100 through a tracker fund.

Instead they need to "approach it with a fine tooth comb to make sure they are picking the winners and avoiding the dead wood”, he said.

“There have been some terrific success stories on AIM but there have been plenty of flops too," he said. "It is therefore a market to go fishing in with a line and pole, rather than a big net."

Stuttard said AIM allows the LSE to provide a service to companies throughout their lives and give investors choice.

The market offered smaller companies access to institutional investors and capital as well as the chance to increase their profile and credibility, he said.

AIM shares are also allowed in ISAs, receive favourable inheritance tax treatment and do not incur stamp duty.

Stuttard rejected suggestions that the market is too lightly regulated, saying its lighter rules made it easier for private companies to go public.

He said: “In 2010/11/12 up to £6bn a year was being raised and much of that was from companies already on the market raising further capital.

“If investors weren’t confident in the regulation (of the market) we wouldn’t have seen that level of investment.”

Stuttard claimed the market allows companies to avoid red tape as they do not have to build large internal compliance teams.

“It’s easier to raise capital without having to do the same level of document production," he said.

“The overall structure of disclosures and transparency is broadly the same as the main market but we’re less prescriptive.”

Stuttard said about half of companies leaving AIM in any one year did as a result of some form of corporate activity such as mergers or acquisitions, rather than dissatisfaction with the market.

“The failure rates on AIM are broadly similar to the main market,” he said.

Stuttard also denied that AIM's sole intention was to increase the number of companies on the market.

“We’re not playing a numbers game – we want businesses that want to be on the market,” he said.

Stuttard is confident about the future, saying there is a strong sense of confidence among the businesses that he talks to.

“We were seeing £5bn-£7bn a year raised on AIM in the financial crisis, which shows investors have capital and remain fully committed to small companies and this asset class,” he said.

“We’ve got government and policymakers across Europe supporting small companies."

Stuttard said AIM and the LSE were neutral on the issue of whether the UK should quit the EU in the proposed referendum.

But he said: “Europe is a very important market for us and London being a gateway to European capital is also very important.”

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