British retail investors remain keen to buy shares of newly issued companies despite a sharp drop in IPOs and a sharp sell-off in shares.
Do-it-yourself investors invested 7% more money in newly issued shares for companies listed on London markets in the year to the end of May compared to the same period in 2021, according to broker Interactive Investor.
The steady growth in retailer participation in these secondary fundraisings comes despite a dreadful year for new listings as companies postponed plans to go public due to market turmoil.
Retail investors have historically had few opportunities to participate in corporate fundraising on the same terms as institutional investors. The steady flow of investment into equity issues this year is part of a concerted effort to make it easier for DIY investors to participate in this part of the UK capital markets, opening up new sources of capital for companies.
“New technologies, alongside regulatory scrutiny, mean that public companies have every reason to include individuals when raising capital. . . But too many deals remain institutional only, especially UK IPOs,” said Anand Sambasivan, chief executive of PrimaryBid, a platform that allows retail investors to join corporate fundraisers.
Data from Interactive Investor shows fundraising open to its clients collectively raised £775m of newly issued shares from listed companies in the year to the end of May, an increase of 7% compared to last year. By contrast, share purchases customers were asked to participate in as part of an IPO fell 84% to just £56m.
Data from Interactive Investor, the second-largest UK platform with a one-fifth market share, suggests other retail savers have also increased their purchases of new issues.
Retailers’ continued appetite for new stocks comes as industry players do more to open up access to the IPO and fundraising. Hargreaves Lansdown and AJ Bell, two of the biggest platforms, last week announced a deal to connect customers to a fundraising service run by brokerage Peel Hunt.
“The growing number of committed retail investors in the UK should be seen as an attractive source of capital,” AJ Bell chief executive Andy Bell said at the time.
So far in 2022, there have been 22 fundraising deals that include retail investors, according to data from PrimaryBid. The number of such transactions in the first half of the year is much lower than the 112 transactions made in the course of 2021. However, the first six months of this year saw more retail-friendly transactions than all of 2019, attesting to the increasing openness of these transactions. transactions to self-directed investors.
According to data from Interactive Investors, much of this year’s fundraising went to investment funds focused on alternative assets. “It’s primarily the investment trust industry that keeps the show going…In the current inflationary environment, investors are increasingly looking for alternative income with some built-in inflation protection,” a said Lee Wild, head of equity strategy at Interactive Investors.
Despite the growth in direct retailer involvement in corporate fundraising, Interactive Investor managing director Richard Wilson would like to see the government do more to improve access. “We support the government’s work to strengthen the rights of retail investors. However, without prescriptive rules, enshrined in legislation, retail investors will remain marginalized in key areas,” Wilson said in a letter to Treasury Minister John Glen.
Among the measures Wilson would like to see enacted are rules to ensure that documents, like prospectuses and AGM resolutions, are written in “plain English” because “legalese robs retail investors “.