Call to give smaller investors access to big City flotations

Andy Bell

Smaller investors should have access to City flotations which are normally the preserve of big financial institutions.

That is the view of three investment houses, including two with Manchester operations, in an open letter to Economic Secretary to the Treasury and City Minister, Jon Glen.

Between them they administer more than £200bn-worth of shares on behalf of around two million UK retail investors, the smaller investors looking to support companies by purchasing shares in their businesses.

The letter is signed by the chief executives of Manchester investment platform AJ Bell headed by Andy Bell, Manchester-based Interactive Investor, the UK’s biggest flat-fee investment platform, and Bristol-based financial services company Hargreaves Lansdown.

They argue that, for too long, UK listings have been confined to the big financial institutions and are urging Jon Glen to consider the rights of retail shareholders in relation to IPOs (independent public offerings).

One of the biggest IPOs in recent years took place last September, when Manchester-based online retailer The Hut Group floated on the London Stock Exchange raising £1.88bn from institutional investors who paid 500p per share, giving the company an overall valuation of £5.4bn.

In early trading the stock surpassed the initial pricing, opening at 600p before hitting 658.30p per share at one stage. This morning (February 22) its shares were trading at around 733p per share.

The letter to Mr Glen has been made public so the arguments can be heard by the boards and advisers of companies considering listing on the London Stock Exchange.

The three signatories say: “Our combined businesses administer assets worth over £200bn for around two million retail investors in the UK. These and other retail investors are a growing market but are excluded from the majority of IPOs via the LSE, with the Hut Group, Dr Martens and Moonpig recent high-profile examples.

“For too long, UK listings have been the preserve of financial institutions and we urge you to consider the rights of retail shareholders in relation to IPOs.”

They suggest a possible regulatory obligation on companies coming to market in the future to consider a retail element to their IPO which, they say, only happens currently when the company and its advisers suspect there will be weak demand for the IPO.

The signatories call on companies considering listing on the LSE to take retail investors into account, saying: “Ultimately it is the boards of companies that control whether their IPO is open to retail investors, but they are currently discouraged to do so by the sponsoring investment banks.”

They point out that, as it stands, retail shareholder rights are almost completely ignored when it comes to the vast majority of IPOs, which largely take place between City institutions behind closed doors.

It has been reported that between October 2017 and October 2020, private investors were invited to take part in just 24 out of 352 IPOs on the main market and AIM (Alternative Investment Market), which means they were excluded from 93% of share launches.

They write: “That needs to change. Retail investors should have as much right as any other institution to invest at IPO, rather than having to ‘get in line’ and potentially buy the shares at a premium in the open market, post-IPO. The UK taxpayer stands behind UK plc and should have unfettered opportunity.”

Involving smaller investors would be simple, they say: “From a practical perspective, opening an IPO to retail investors is now a standardised process which is fully compliant with the FCA (Financial Conduct Authority) listing rules and requirements of the London Stock Exchange.”

And they list the benefits to companies of having a retail offer as part of their IPO:

  • It gives them access to an additional source of capital and can generate increased demand for the IPO
  • It can help raise the profile of the business and deepen relationships with loyal customers by treating them equally with institutional investors
  • It can create a healthy shareholder base – most retail investors are long-term holders via pensions and ISAs and supportive of management, creating shareholder diversification and pricing stability

The signatories conclude: “We have first hand experience of facilitating IPOs for retail investors and we know there is demand for them from our retail customers.”