Stockbroker Collins Stewart has created a first-of-its-kind investment fund that could herald a major shake-up for small public companies - including ReNeuron, the stem cell researcher floated last year by the controversial Labour donor Sir Christopher Evans.
The AIM Realisation Fund offered large investors a one-for-one swap of stock in the new fund for shares in companies listed on AIM, the London Stock Exchange's market for smaller companies. The £30m fund, which Collins Stewart quietly listed last month, already has at least 10 companies in its portfolio, including ReNeuron.
Market observers see it as a novel way to address the difficulty institutional investors encounter when dealing with AIM-listed companies. In particular, they often struggle when they want to sell shares because the stocks are lightly traded, meaning there is a dearth of willing buyers.
"I imagine we will see more of these [types of fund], especially if things get worse," said one analyst.
AIM has lost more than a fifth of its value since May. The market correction has been hard on firms that were already struggling for trading volume and analyst coverage amid the rapidly growing ranks of larger companies on the LSE's main list.
In its offer document, Collins Stewart said its goal was to "provide value and liquidity for shareholders". Market watchers interpreted that as an indication that it will take activist approach in some of these companies,.
"It's a fair assumption that in some of these they will be very active in achieving results," said one fund manager. "It's a good way for funds to get some of these companies off their books."
The sellers will probably have unloaded some holdings at a discount to the market value, insiders said. Collins Stewart declined to comment.
The two largest holders in the AIM Realisation Fund are Artemis Investment Management, with 24 per cent, and Dresdner Kleinwort, which owns 16 per cent. Collins Stewart, which said it expects to have cashed out of the fund in four years, owns less than 10 per cent.
Most of the companies in the fund are not followed by investment bank analysts. Like many businesses on AIM, they suffer from poor liquidity or trading, so it is virtually impossible for large investors to make their exit from them without dramatically affecting the stock price. The smaller market values of these groups also mean they can be neglected by fund managers. "A lot of these companies [on AIM] just should not be listed," said the fund manager.
One such company, he said, is ReNeuron, whose flotation Collins Stewart handled last year. Merlin Biosciences, the venture capitalist firm headed by Sir Christopher, has backed ReNeuron for several years. The biotech millionaire made waves in the industry last year by threatening to take the company to the Nasdaq, the US technology-oriented exchange, if investors did not support Re-Neuron's listing. He said at the time that he would "be whistling 'The Star-Spangled Banner' by the end of next year".
Despite the concerns, Sir Christopher - who last week was arrested as part of the cash-for-peerages investigation - was able to float ReNeuron at 25p. Its shares ended last week at 6.5p, giving it a market value of £6m, only marginally more than the £5.8m it has in cash.
This is the second time ReNeuron has been listed; it was delisted by Merlin Biosciences following the tech market crash.
The AIM Realisation Fund has also acquired stakes in Micro-Emissive Displays, a developer of display technology; the Local Radio Company, an operator of 28 stations across the UK; and Blavod Extreme Spirits, a seller of black vodka and herbal liquor.Reuse content