Think before taking AIM

The Investment Column

The Stock Exchange's new Alternative Investment Market, AIM, due to open on 19 June, is expected to offer investors the prospect of fast growth and high returns. But the market is definitely not for the faint- hearted or anyone unwilling or unable to afford the odd flop. Although the exchange proposed the new market following an outcry at the decision to close the Unlisted Securities Market at the end of next year, AIM is in no way a straight replacement.

It is markedly less regulated and, as a result, more of a gamble for the private investor. Companies listing on AIM are not required to have an official sponsor, nor will they have to produce the same level of information in a prospectus.

Although the proposed closure in June of the rule 4.2 market, the existing facility for dealing in infrequently traded shares, means that a number of established companies such as Weetabix and National Parking Corporation will have to consider moving to the market, most of the companies listing on AIM will be young companies looking for development capital. The average market capitalisation should be about £15m.

The risks associated with the market are clear from the unwillingness of big-name institutions such as Norwich Union and M&G to invest money in AIM companies. But this is to be expected from funds whose policyholders tend to be looking for a return moderately above average, but not necessarily spectacularly so.

The tax breaks the Treasury has given to the new market, however, could provide a real incentive to invest. Investors will receive capital gains tax relief where the proceeds on the sale of assets are re-invested in an AIM company and Enterprise (Incentive) Scheme allowances are also available. But tax relief is little good if an investment goes wrong. One way to protect against duds is to invest in the many venture capital trusts expected to launch between now and the autumn. While allowing investors to share in the potential gains, they will be less risky.

In a sense the exchange has itself taken a risk by launching the new market. Early flops would dent the credibility of the market, and could do for it what the Aerostructures Hamble and MDIS disasters have done for new flotations on the main market.