Deputy City Editor
The Alternative Investment Market is failing to attract the institutions who will be the key to its success, according to brokers trying to bring companies to the fledgling share market. Two months after the launch of AIM, investors and companies alike are still waiting for the market to achieve critical mass.
Since its launch in June, when 10 companies braved the first day of dealings, a further 20 companies have joined AIM. Only five of those, however, are newly traded stocks. The others have transferred from the Rule 4.2 trading facility and hardly any new money has been raised.
Former 4.2 companies have until the end of September to move over, using a simplified procedure which should in theory cost less than a full listing. With the holidays out of the way, supporters of the market are counting on a final rush of transfers over the next few weeks.
A spokesman for the Stock Exchange described the first two months trading as "a good steady start" - pointing to a similarly sluggish beginning for the Unlisted Securities Market 15 years ago - but brokers specialising in the market have been less enthusiastic.
Neil Austin, head of KPMG's AIM team, said: "There is some resistance from institutions. It is a chicken and egg situation, with a need for the volume of companies to increase before the market will bother to take a look."
He thought the catalyst for growth would be the expected launch in October of venture capital trusts and other pooled investments which would give investors exposure to a spread of AIM companies.
Another key development would be an increase in the number of companies actually raising money from the market, rather than simply acquiring a listing for existing shares.
That would increase the liquidity of the market; it is currently unattractive to institutions which are loath to acquire shares they are then unable to sell again.
One major disappointment of the market has been the absence of what some expected to be a flood of high-tech flotations, involving very young or start-up companies raising money they could not obtain from venture capital or from other sources.
Robin Dunham at Charles Stanley said the firm had talked to a number of high-tech companies but said their owners had unrealistic expectations of the valuations they could achieve from an AIM listing.
Collins Stewart went further, saying it was avoiding the sector completely. In the early stages of the market, the firm said, investors were only interested in solid companies with good track records.
Elizabeth Kennedy at Allied Provincial - recently taken over by King & Shaxson's Greig Middleton arm - agreed that quality was the key. She is bringing to the market Creos, a Scottish manufacturer of medical imaging equipmentwhich she stresses is not a blue sky business, but one with contracts already in the bag.
She added that Allied had turned down a number of companies because of their unrealistic price expectations. This could be avoided by taking managements to institutions early in the process.
A further obstacle apparently holding the market back was the unexpectedly high cost of gaining a listing. One broker said a number of clients had been put off by the fees that other firms were charging to act as nominated adviser, a Stock Exchange requirement of companies listing on AIM.
There is strong disagreement among brokers about what constitutes a sensible fee for bringing a company to the market, with one adviser offering a cut-price package of pounds 25,000, less than a tenth of the price paid by other companies that have already joined AIM.