AIM: What the Alternative Investment Market Is, How It Works

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 LSE stock market.

Understanding the Alternative Investment Market (AIM)

AIM opened its doors in 1995 to 10 companies with a combined market capitalization of about £82 million ($116 million). Since then, it has helped more than 3,865 companies to raise over £115 billion ($163 billion) and, according to the LSE, is now home to approximately 850 companies with a combined market cap of £104 billion ($147 billion).

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.

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 after.

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 a Less-Regulated 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 resources 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.