Understanding the Alternative Investment Market

The alternative investment market is a vast and complex space, but understanding its basics can help you navigate it with confidence.

Private equity investments, for instance, accounted for $1.1 trillion in assets under management in 2020.

Investors often turn to alternative investments as a way to diversify their portfolios, as they tend to perform differently than traditional stocks and bonds.

Real estate investments, another type of alternative investment, can offer rental income and long-term appreciation in property value.

The Alternative Investment Market, or AIM, is a sub-market of the London Stock Exchange (LSE). It's designed to help smaller companies raise capital from the public market.

AIM provides a platform for these companies to access the public market with much greater regulatory flexibility than the main LSE stock market. This means they can list on a public exchange with fewer rules and regulations to follow.

AIM is a great option for smaller companies that want to raise capital without having to adhere to the same strict rules as larger companies.

The Alternative Investment Market offers various tax benefits that make it an attractive option for investors.

One of the key benefits is the Business Property Relief, which grants up to 100% Inheritance Tax Relief on the transfer of value of stock shares.

This relief is only applicable to investments in small, unquoted companies, and the investors must have invested in the shares directly.

Investors in companies listed on the AIM may also qualify for the Enterprise Investment Scheme (EIS), which offers a 30% up-front income tax relief and can provide up to 100% Inheritance Tax Relief.

To qualify for these tax reliefs, a firm must abide by all of the rather complex and detailed requirements for an EIS for a minimum of three years.

Venture Capital Trusts (VCTs) also offer income tax and capital gains tax breaks, including 30% income tax relief and tax-free dividends.

AIM has a regulatory model that's based on a "comply-or-explain" option. This means companies listed on AIM can either follow AIM's rules or explain why they're not complying with them.

Companies that choose not to comply with AIM's rules must provide a clear explanation for their decision. This transparency is a key aspect of AIM's regulatory model.

AIM is regulated by the London Stock Exchange (LSE), which is a recognized stock exchange.

A Nomad, also known as a Nominated Advisor, plays a crucial role in helping companies get listed on the Alternative Investment Market (AIM).

They are typically investment banks or brokers with experience in bringing companies to the market.

A Nomad's key roles include assessing investor interest in the company and advising on share pricing and investment opportunities.

You will also need to enlist other advisors, such as an accountant, a lawyer, and a financial PR advisor.

In assessing a company's suitability for AIM, a Nomad will need to enlist an independent Reporting Accountant to carry out the work.

To become a Nomad on the AIM, a firm must meet the eligibility criteria outlined in the AIM Rules and complete the necessary application documents.

The AIM's regulation team reviews the firm's application and holds discussions in detail before approval.

Prior to approval, the firm and its executives will be subject to a gazetting period.

The AIM Rules for Nominated Advisors guides Nomads on their ongoing responsibilities and review and disciplinary procedures.

A Nomad provides a guarantee to shareholders that the company's operations are reasonable during the initial share flotation process and subsequent periods.

The Alternative Investment Market (AIM) has a unique regulatory model that sets it apart from other markets. AIM is an exchange-regulated venue with a principles-based rules framework.

Companies listed on AIM have the option to either comply with AIM's rules or explain why they're not complying. This "comply-or-explain" approach allows for flexibility.

AIM's regulatory model is based on a relatively small number of rules, which is one reason why it's considered a low-regulatory-burden market. This makes it attractive to smaller or riskier companies.

Companies that are floated on AIM must comply with ongoing obligations, which are lower than those governing larger exchanges. However, this also means they're not subject to the same level of scrutiny as larger companies.

AIM-listed companies are required to prepare audited annual accounts under IFRS, but they're not subject to the same corporate governance requirements as larger companies. This can make them more vulnerable to manipulation by institutional investors.

The Alternative Investment Market (AIM) is a sub-segment of the London Stock Exchange (LSE), created to help smaller or riskier companies access capital via the public markets.

Companies listed on AIM typically raise capital through an Initial Public Offering (IPO), often between £1m and £50m, but can raise as much as £100m.

The AIM admission process can take between three to six months to complete, involving a considerable amount of management time.

Investors are attracted to trading on AIM due to significant tax benefits and the belief that it's the right place for "the next big thing."

AIM's investor base is largely composed of institutional investors and wealthy individuals, as these groups are better equipped to handle the risks associated with investing in smaller, potentially riskier companies.

Most AIM-listed companies are small and relatively new, making them riskier than larger, more established companies listed on the FTSE.

Institutional investors and wealthy individuals have the knowledge and resources to conduct thorough research on a company's prospects and activities, which is essential for making informed investment decisions.

AIM-listed companies often lack strong internal control and risk management requirements, making them more vulnerable to poor management practices and financial mismanagement.

As a result, it's crucial for investors to be sophisticated and have a good understanding of the company's operations and financial situation before investing.

Preparing for AIM Admission can take a considerable amount of management time, typically between three to six months to complete from the initial all parties meeting.

It's essential to give careful consideration to the reasons for seeking an AIM admission, such as raising capital, creating liquidity for the company's shares, or incentivizing employees.

The AIM admission process is significantly cheaper than floating publicly on the main London Stock Exchange, with costs ranging from £500,000 to £100,000 each year for maintaining membership.

To begin the process, a company must identify and appoint a Nominated Advisor, also known as a NOMAD, who will guide them through the flotation process and provide a guarantee to shareholders.

A company seeking to be listed on the AIM must also prepare an admission document, which includes important information about the company, such as its directors, annual financial statements, and business plan.

Preparing to float on AIM can take as long as two years, although actually joining the market takes around 10-12 weeks.

The AIM attracts small companies from various market sectors, with companies operating in the Healthcare, Finance, Oil and Gas, Technology, Industrials, and Consumer Services sectors being the most frequently represented.

Investors are attracted to the AIM due to significant tax benefits and the belief that it’s the right place for “the next big thing,” but it's essential to be aware that most AIM stocks are considered high-risk investments.

The AIM Rules for Companies and Nominated Advisors guide companies and their advisors on their ongoing responsibilities and review and disciplinary procedures in the event of improper conduct.

Americans can buy assets on the London Stock Exchange, making it accessible to international investors.

They can do so via American depository receipts, which allow them to invest in foreign companies listed on the LSE.

Opening up foreign accounts with brokers is another way for Americans to trade on the LSE.

Trading contracts for difference (CFD) is a third option available to American investors.