What is the Alternative Investment Market - AIM
The Alternative Investment Market (AIM) is a sub-market of the London Stock Exchange (LSE) that is designed to help smaller companies access capital from the public market. AIM allows these companies to raise capital by listing on a public exchange with much greater regulatory flexibility compared to the main market. Companies seeking to do an initial public offering (IPO) and list on AIM are usually small companies that have exhausted their access to private capital but are not at the level required to undergo an IPO and list on a large exchange. Although AIM is still referred to as the Alternative Investment Market, or London’s Alternative Investment Market in the financial press, the LSE has made a practice of referring to it by its acronym only.
BREAKING DOWN Alternative Investment Market - AIM
As of 2015, 20 years after its 1995 launch, AIM boasted more than 3,500 companies that operate in more than 100 countries globally. During this same period, AIM helped these firms raise over 90 billion pounds (over 140 billion in USD). The FTSE Group maintains three indexes for tracking the AIM: the FTSE AIM UK 50 Index, the FTSE AIM 100 Index and the FTSE AIM All-Share Index.
AIM and the Nomads
The process for a company listing on AIM follows much the same path as a traditional IPO, just with less stringent requirements. There is still a pre-IPO marketing blitz, with historical financial information to stir up interest, and a post-IPO lock up, for example. One key difference is the role nominee advisors, commonly known as nomads, play in the process. These nomads are seen as the regulatory system for AIM and are tasked with advising the companies pre-IPO and carrying out the due diligence that investors expect in order to vet the prospectus. One issue that is frequently raised about this relationship is the fact that nomads are responsible for ensuring regulatory compliance, but they also profit in the form of fees from the companies they list and continue to oversee as part of the listing agreement.
AIM’s Reputation as an Unregulated Market
AIM is seen as a more speculative investment forum due to its relaxed regulations compared to larger exchanges. The regulation for companies listed on AIM is often referred to as being light touch regulation, as it is essentially a self-regulated market where nomads are tasked with adhering to the broad guidelines. There have been cases of nomads failing to do their duties, as it were, and AIM is not a stranger to outright fraud (to be fair, no major exchange is either). As a result, AIM tends to attract sophisticated and institutional investors who have the risk appetite and resource to perform independent due diligence. AIM has been criticized for being a financial wild west where companies with questionable ethics go for money. This criticism has held up in some cases, particularly with extraction companies operating in impoverished regions of the world. However, AIM has also shown the value of having a gap market where risk-hungry investors can help accelerate cash-starved companies along their growth path, benefiting the company, its investors and the economy as a whole.