Marcus Stuttard: Taking AIM at the small cap world
The Business Interview: The head of LSE's growth market tells Nikhil Kumar about AIM's critical role in financing smaller firms
Thursday 10 March 2011
The London Stock Exchange building by St Paul's Cathedral will disappoint anyone who equates stock markets with harried traders bellowing at one another. Here, the sharp-suited executives who trickle in and out of the revolving doors seem polite and chit-chat in hushed tones. The reception is quiet and softly lit. Faster computers and better connections mean that traders operate remotely, stationing themselves at their banks' City or Canary Wharf offices, or even beyond these shores. But besides making for more tranquil offices, the change in the way stock markets operate can also mask their influence. Take the Alternative Investment Market, aka AIM, the Stock Exchange's growth market for smaller companies.
Marcus Stuttard is the man charged with keeping the market going. The studied silence of AIM's home in Paternoster Square hides the fact that in 2009, UK firms listed on the junior market contributed £1.8bn in tax to the Exchequer while directly supporting some 250,000 jobs, according to Grant Thornton. Mr Stuttard is an LSE veteran who will complete two years as the head of AIM next month. A lawyer by training, he began life in the LSE's listing department before that function was taken over by the regulators. He spent a couple of years as the deputy head of AIM before taking the helm in 2009, just as the credit crisis crunched stock markets.
AIM was caught in the crossfire. Some 27 companies left because of insolvency or financial stress in the third quarter of 2009, months into Mr Stuttard's tenure. Though lower in the fourth quarter, more than 20 companies left for similar reasons in the final three months of the year, according to figures from the law firm Trowers & Hamlins and the accountants at UHY Hacker Young.
When asked about those dark days, Mr Stuttard is quick to point out that it "wasn't just an AIM issue". "If you look at markets globally – not just the small cap markets – it was a rough period," he said. "During those sorts of market conditions you would naturally expect companies and their management teams to look at the cost benefit of being admitted to a pubic market. For some businesses on AIM, they looked at that cost benefit and decided that actually, for the next stage of their development, being private was the right thing for them."
There is also the issue of context, he adds. "When you've got a smaller companies market, you will naturally find a higher churn rate than you do on large-cap markets," he said. "Even in good conditions, you still find that there are a number of companies leaving the market. And a lot of companies will actually come on to the market with the intention of being acquired." But the market has begun recovering. Last year, there were 157 departures from AIM, down from 280 the previous year. More encouragingly, only 72 companies left AIM in 2010 because they could not maintain their listing or did not see the value of having one.
Much is on the agenda as the market recovers, not least the LSE's planned merger with the Canadian bourse TMX. It already operates TSX Venture Exchange, which, like AIM, allows early-stage companies to raise capital. "The complementary nature of those two mean that we have a very compelling and exciting offering for small caps going forward," he said. "It's about a number of things [including] the complementary nature of the investor pools we service."
Ultimately, the success of markets such as AIM depends on the wider environment for small caps. Unsurprisingly, Mr Stuttard spends a lot of time making the case for smaller firms, and for the use equity finance to power their growth.
"We've been talking to policymakers both domestically and at a European level about the funding environment for the small caps," he said. "The Government, when it came in power, very quickly launched the Green Paper on business finance and we were very pleased to see that that focused on not just the public markets but looked at the whole financing chain."
AIM, he argues, plays a critical role. "If you don't have a vibrant public market like AIM, the bits earlier on in the financing chain don't work," he said. "So, whether that's angel investors putting early-stage seed capital into businesses, whether it's the venture capital and the private-equity industry – if they've not got certainty that there is a dynamic exit opportunity for them, it acts as a barrier to the earlier stages of finance."
With the economy recovering and the Budget around the corner, Mr Stuttard hopes the Government will begin delivering on its desire to aid smaller firms. "It's very clear to me to me that we have got a fantastic crop of technology and very good opportunities in the UK," he said, hoping that small companies make more use of equity finance to exploit these opportunities. With his team at AIM, he stands ready to help out.
Navigating the markets
* Marcus Stuttard has been with the London Stock Exchange since 1994, joining the listing department as a regulatory adviser a year before the birth of the AIM growth market.
* He moved up the ranks to become deputy head of AIM in 2006, seeing the onset of the financial crisis wreak havoc with stock markets around the world.
* As the crisis raged in 2009, he was announced as the head of AIM by Xavier Rolet, the former Lehman Brothers banker who joined the LSE board as chief executive designate in March before taking over from Dame Clara Furse in May 2009.
* Marcus is also a director of Tokyo AIM, the joint venture between the LSE and the Tokyo Stock Exchange to develop a new market for growth companies in Japan and Asia.
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