After 20 years of the good, the bad and the ugly, has AIM grown up?

Amid scandals such as Langbar and success stories like Asos and Majestic Wine, investors will have mixed feelings on the junior market’s anniversary. Jamie Nimmo looks back on a chequered past and asks if the future will be more rewarding

This year’s model: the summer look at Asos. A £1,000 investment in the retailer in 2001 would now be worth £160,000

It’s the 20th anniversary of AIM but the mood seems to be one of relief rather than celebration. That the Alternative Investment Market, to use its original title, is still going while copycats around the world have fallen by the wayside is a feat in itself. But that’s not to say the junior stock market hasn’t had its fair share of ups and downs along the way, not to mention a scandal or two.

Remember Langbar International? The holding company collapsed in 2005 after admitting it “could not establish the existence” of £370m that it had claimed to have raised. Its chief executive was jailed for a year for making “misleading, false or deceptive or reckless” statements to the Stock Exchange.

And then there was Carl Cushnie, the high-profile Labour Party donor once hailed as Britain’s most successful black businessman. He was sentenced to six years in prison for fabricating the turnover of his trade finance company, Versailles.

China’s ZTC Telecoms, meanwhile, was forced to suspend its shares in 2008 as its chief executive and general manager, who happened to be the chief executive’s brother-in-law, both mysteriously vanished before the company fell to pieces.

There was also a case of manipulated financial figures during E -District’s £150m IPO in 2000, including turnover that was inflated by up to eight times. That led to auditor PwC being sued by investors.

Another colourful story was Izodia, formerly Infobank, a £2.4bn software company turned AIM-listed cash shell following the dot-com crash. It was wound up after one of its main investors, a holding company run by the serial entrepreneur and convicted fraudster Gerald Smith, raided its bank account and siphoned out £35m.

More recently, there have been accounting issues at the insurance outsourcer Quindell and money laundering compliance problems for the online trading group Plus500. Both sets of shares slumped in the wake of their respective investigations.

There have also of course been a number of success stories, most notably Asos. The value of the online fashion retailer has soared since it joined AIM in 2001. A £1,000 investment would now be worth £160,000.

Other tiddlers turned household names include Majestic Wine, up almost eight times since its 1996 flotation, and Domino’s Pizza, which is now on the FTSE 250 along with 13 other former AIM members.

The FTSE AIM All-Share index paints a picture of the junior market’s rollercoaster ride over the past 20 years. A steady start to life was followed by a spike as the dot-com boom gripped the financial world. The tech bubble burst soon after and the index was in steady decline for the next few years. A steadier rise ensued before the financial crisis hit in 2008, when it tanked again. Since then, it has been a slow rebuilding process.

AIM started in 1995 with just 10 companies worth a combined £82.2m. Now there are 1,074 companies worth £75.3bn in total. But before the crash in 2008, there were 1,694 companies with a combined value of £97.6bn.

Domino’s Pizza is now on the FTSE 250 along with 13 other former AIM members

If you’d invested £1,000 in the FTSE AIM All-Share in January 1996, you’d have about £760 left in your account – or £830 if you had reinvested dividends.

Compare that with the FTSE 100, which is up more than 80 per cent over the same period. A £1,000 investment would now be worth around £1,820 – or £2680 with dividends reinvested.

AIM’s private punters are tempted in by the potential for sharp share price rises among companies in their early stages, especially in the oil and gas exploration sector. However, with the prospect of more attractive returns comes higher risk and a greater probability of failure. A recent report revealed that one in 10 companies listed on AIM had lost at least 90 per cent of their value over the past five years.

Matt Butlin, head of equities at the broker Allenby Capital, blames a string of poor-quality companies that took advantage of buoyant market conditions to go public, especially mining and oil and gas concerns.

“I think there is a cleansing process going on where a lot of these small shells or small natural resource companies are slowly dropping off the market – and they’re being replaced by quite high-quality companies,” he said.

Mr Butlin admitted that distinguishing between the good and the ugly is difficult given the lack of research available on most of the market’s constituents.

Marcus Stuttard, head of AIM at the London Stock Exchange, argues that much has changed – not least incentives for investors such as being able to include AIM shares in Isas. “We really want to make sure across AIM and the Main Market that retail investors are included to the fullest extent,” he said.

"Equity is risk capital, so you will get companies that don’t perform in line with expectations," Mr Stuttard added, pointing out that the casualty rate on AIM is broadly in step with its big brother. “From time to time you have failures on the Main Market – you have FTSE 100 companies that have challenges. But when that happens, it’s a problem with a certain company, not a problem with the market.

"If we didn’t have a robust regulatory framework in which the investors had confidence, we wouldn’t have seen £90bn raised for smaller companies."

Most people now invest in Main Market-listed companies through funds. AIM, by contrast, is a stock-picker’s market – as Laith Khalaf, senior analyst at the adviser Hargreaves Lansdown, explained.

"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 great big net.

"AIM is a market suited to investors who are sophisticated, brave and patient," Mr Khalaf added. "Anyone who wants to gain exposure to smaller companies but doesn’t have the expertise to pick stocks should consider investing via a fund."