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May 3, 2022

Bringing retail investors into the fold creates equality of opportunity from our wealth

This article, written by Roger Clarke, IPSX Group CEO originally appeared in CityAM on 3rd May 2022

In the 1980s, one of the UK’s most high-profile flotations was the privatisation of the state-owned British Gas. The government’s “Tell Sid” 1986 advertising campaign attracted many of its 500,000-strong army of private investors.

During the countdown to the British Gas shares sale, the government courted subscriptions from retail investors in every way imaginable – from television and radio commercials to full page advertisements in print media.

Now, four decades later, retail investors find themselves excluded from many of the most desirable IPOs. This exclusion – from the chance to share in the nation’s entrepreneurial culture – is preventing us from increasing opportunity across the UK.

In a record year for IPOs, the London Stock Exchange (LSE) was the largest centre for IPOs globally in 2021 outside of the US and Greater China. In aggregate, LSE IPOs raised £16.8bn – the strongest year for IPO capital raising since 2007.

According to AJ Bell, a leading online stockbroker, these new issues appreciated by an average of 24 per cent in the weeks following their launch – rich pickings indeed during a period of excessively low interest rates.

However, the lack of access to some of the more high-profile listings for retail investors, including household names such as Dr Martens and Moonpig, not only compromises the opportunity but also damages the integrity of public markets.

Retail investors enjoyed access to only six IPOs last year. Of these, two did not proceed and one was a secondary issue.

Investor appetite is naturally highest for the IPOs of companies operating in what are perceived as new technology arenas, given the evolution of a new style of living and the fading influence of some of yesterday’s technology giants.

Life Science REIT was the most successful IPO last year after it received almost double the number of subscriptions of the second-placed IPO.

Renewable energy and infrastructure, with a sustainable or environmental theme are other key areas of interest. Indeed, there were several IPOs related to these themes last year with more to follow. But how accessible for retail investors will these be?

A campaign by personal finance media for broader retail access to IPOs has been underway for around a year. Campaigners are calling for a quota system compelling companies to include subscriptions from ordinary investors when they float.

Despite the reduced management charges being levied on collective investment schemes, such as Open-Ended Investment Companies, the number of UK-based retail investors wishing to access IPOs continues to grow, with most managing their portfolios via investment platforms that can provide quick and easy access to IPOs.

The overarching goal must be to compel listed companies to provide complete shareholder democracy – a key pillar of this principle will be open access to IPOs for all. For now, the value of investment platforms should not be underestimated.

IPSX, which is leading the way to become the first exchange where real estate securities will be traded as a predominant asset class and hence provide a bridge between commercial real estate owners and a large pool of investors is one vehicle that can “democratise” investment.

Why, after all, should only giant institutional investors be able to buy shares in vehicles that own the UK’s traditional favourite asset class – bricks and mortar – to the exclusion of private investors?

PrimaryBid, a regulated capital markets technology platform connecting public companies to their communities during fundraisings, is another vehicle geared towards gaining access to the capital markets for private investors.

The private sector is creating opportunities where it can, but ultimately, the government needs to promote greater access to new companies entering the public markets from the widest pools of capital, benefiting not only private investors but entrepreneurial and newly-listed companies themselves.

[1] Source: Bringing retail investors into the fold creates equality of opportunity from our wealth (cityam.com)