Are we destined to be the organisers whilst others are the winners and is it a crying matter?
After the intense effort for the fundraising and acquisition at Northbridge during June and July, it was nice to relax a little in August. We took off to Turkey to enjoy a resort with numerous swimming pools, tennis courts, and a bit of peace and quiet. Frisky, chirping crickets aside it was fairly peaceful. The rowdy England-shirted football supporters with scary tattoos we have encountered occasionally in resorts past were nowhere to be seen, partly because I suspect they thought that an England shirt was no appropriate attire for a football-lover, and partly because the majority of the people in the resort were German and Russian; none of which you particularly want to get into a football skirmish with.
To the delight of my children, I was dragged up on stage during the entertainment; the main purpose of which, that evening, seemed to be to humiliate the very people who had paid a not-inconsiderable amount of hard-earned cash to be there. In my case the humiliation involved the presenter asking guests to speak English and I was asked to say certain words such as water. How humiliating could that be I hear you say? Well the point was that when I pronounced the word as “war-ter” the presenter and his accomplices fell about laughing saying that I could not possibly be English because if I were I would pronounce it as “war-er”. I shall spare you the gory details of the non-stop hilarity and mirth that ensued for the rest of the show. Suffice to say that it’s a sorry state of affairs when “foreigners” (and I don’t mean “foreigners” in a Daily Express sort of way of course) not only speak better English than British people, but also feel that they can rebuke us for it.
It got me thinking that perhaps here was the ultimate example of something invented here (well not invented exactly but developed) that was now done better by others overseas. Is it the case that we can add the speaking of the English language to a myriad of other activities invented (or at least codified) here that are now done better by foreigners?
Quarter final specialists
It’s generally accepted, even by the French, that Wimbledon is the best tennis tournament in the world, and it’s not difficult to argue that the Premier League is the best football league. It even looks as if Lord Coe and Boris Johnson will contrive to make the 2012 Olympics a success.
So why can’t a Brit win Wimbledon? Why is the England football team destined to peak around the quarter finals of the World Cup? Infact why are we destined to be in the quarter-final (ie. the top eight) of almost everything, but never the winners? I don’t mean just sport. Let’s take for example GDP (6th), exports (9th), ease of doing business (5th), income per capita (8th) and so on.
The only activities we seem to go beyond the quarter finals in regularly are those where there are so few competitors that you reach the quarter finals simply by the fact of playing, such as cricket. Apologies to all Italians out there – I know that you have a cricket team but playing in Division 4 of the World Cricket League really doesn’t count in practical terms.
Anyone over 45 years old will remember a song by Barbara Gaskin (and if you’re over 55 then you may remember the original version by Leslie Gore) in which she sang “It’s my party and I’ll cry if I want to” and that seems to be quite an apt phrase for the country, because she also went on to bemoan that she had lost her Johnny. The question is that whilst we are good at organising the party, have we as a nation lost our winning Johnny and if so is it a crying matter?
That got me thinking about AIM and whether it also reflects this tendency. Has the LSE created an excellent platform only for overseas companies to be the winners on, and should we cry about it?
Not getting our share of the pie
Looking at the data it was interesting to see that although overseas companies account for only 38% of the number of companies, they represent 59% by value of the total market capitalisation of AIM. That’s not entirely unexpected as investors supporting IPOs often want to see overseas companies which are larger than a typical British company coming to market, to mitigate for the perceived additional risk in an overseas company. However, the 59% figure did surprise me because what started out as a junior market to provide a route for growing British companies has become a powerful marketing story that the LSE has used to increase its visibility in overseas markets. Over the years the LSE has run roadshows in many countries including India, China, Germany, United States, Sweden and Norway. This marketing has been a success if you judge it by the overseas companies quoted on AIM and is undoubtedly good not just for the LSE but also for London’s reputation as a financial centre.
As well as promoting AIM to overseas companies the LSE has also made advances in extending the AIM brand overseas. Following its 2007 acquisition of Borsa Italiana the LSE launched AIM Italia which now provides a quote to ten companies. Also, in May 2009 Tokyo AIM, a joint venture between the LSE and Tokyo Stock Exchange obtained its license, though whilst a number of so called J-Nomads have been approved the market still awaits its first AIM-quoted companies.
Does it matter that AIM London is increasingly becoming an overseas company market or should we be pleased that this is another British market leader in the making? Well if it brings business to the UK then it can’t be a bad thing as long as investors are happy to provide the funds for such companies to obtain their quote. On the other hand, we have seen over the last two years that the strategic options for growth companies in the UK have been limited, partly by reduced bank lending, partly by the growth of the equity gap ie. the disappearance of funds for second round growth capital, and now by the planned downsizing of regional development agencies. Are the options for smaller British companies limited further by AIM effectively outgrowing those companies and moving away from what it was originally intended to do? If so is there another way to assist growing British companies?
Regional Stock Exchanges
A discussion that has gathered momentum over the last twelve months is the re-establishment of regional stock exchanges. This movement has grown from the regions but has also garnered support from some politicians and in July the Business Secretary Vince Cable launched a consultation paper for views on whether regional stock exchanges could be made to work successfully.
Supporters of this idea claim that such stock exchanges will allow investors to reconnect with local companies, as well as giving entrepreneurs the ability to raise funding from investors with which they have some connection rather than investors a long distance away. However, even ardent supporters accept that the regional exchanges would not be bricks and mortar entities, but virtual in nature.
But these supporters overlook investor trends over the last 10 years. The use of the internet has made share dealing a frequent activity for many investors. Moreover the increased number of overseas companies on AIM and also the globalisation of many apparently British companies means that investors seem to have no fear about investing in companies in which they have little chance of seeing the operations and may only see the management once a year at the AGM. With AIM already suffering from limited liquidity, fragmenting that liquidity by having regional exchanges can’t be in anyone’s interest.
Supporters also overlook a recent example of a regional stock exchange which was funded by public money through Advantage West Midlands. Investbx launched in Birmingham in 2007 with the aim of creating a market for companies in the region. Three years later it has just three companies on its market. This might be down to the credit crunch and economic downturn but I expect that part of it is that investors just don’t see a need for it. It also perhaps illustrates that allowing the private sector to make decisions on innovations such as new stock exchanges might lead to better decision making than leaving it to public funds to drive such decision making.
So, yes let’s recognise that in the UK we might have lost our winning Johnny but we have little to cry about as we are actually quite good at creating and organising things. However, as for regional stock exchanges let’s not get carried away and expect that we can make a success out of ideas that are fundamentally flawed because they address no specific need.