Much has been written over the last few years about the slow destruction of the quoted plc as a mainstay of the western capitalist system. Barely an article on the public markets has gone by that has not mentioned the dwindling number of quoted companies around the world. Take the US, for example. Between 1996 and 2016, the number of listed companies in the country fell to 3,600, down from 7,300. Similarly, we often hear about declining volumes of shares traded and the availability of vast sums of money from private equity and unicorn hunters.
At the end of the market that most interests us, it is taken as an established truth by many commentators that the AIM market is dying – “only” 863 companies remaining, an increased regulatory burden and far greater rewards available under private equity ownership. You could be forgiven for believing that the market was no longer required in some people’s eyes.
If this is true, then the last three months should prompt a serious rethink – both of our view of the public markets as well as how they benefit the UK economy.
We have witnessed the greatest disruption to business in peace time, with vast swathes of the economy shut down by centralised government decisions and equally unprecedented intervention to sustain wages. To respond to these conditions, many companies have had a pressing need to raise capital. Those that are publicly quoted have been able to do so, accessing a far larger pool of capital than any private organisation can muster, and with a speed that cannot be bettered in the private market. It is not too much to say that being quoted at this point has been a distinct competitive advantage.
However, it is not just those that have experienced a sudden need for capital that have benefitted. So have those seeking capital to develop products related to Covid-19, or who are preparing their balance sheets to take advantage of the opportunities to come. UK-listed companies have raised more than £10bn since the pandemic struck and the speed of access to such a deep pool of capital that more than offset some of the “red tape” that comes with being listed.
On the other side of the coin, investors in the public markets are granted:
- Access to liquidity and transparent pricing – This allows capital to be released for new issuance and deployed effectively whenever opportunities arise
- Levels of disclosure and protection – Some of these are enshrined in law and others in the rules of the exchange. They ensure that the pricing of liquidity is fair to all parties
Retail investors have demonstrated that they are keen to invest alongside institutions. In recent weeks they represented over 20% of the volume on the FTSE All Share, with 60-74% of this volume being buy orders. UK stockbroking platforms are also reporting over threefold increases in new account openings.
But if the public markets are such a good place to raise capital and invest why are we not seeing more companies IPO and greater liquidity in growth companies?
The answers, in our view, are multiple but some of the most obvious come down to the twin pillars of government tax policy and regulation designed to protect investors. Both have combined to make the public markets a hostile environment for smaller companies and investors alike.
With evidence of the usefulness of public markets and renewed private investor interest, I hope many more will be tempted to list publicly.