At a briefing last week in London, held by the Association of Investment Companies, VCT managers acknowledged the shrinking of listed stock markets and the rise of unquoted companies in the past couple of decades.
Paul Jourdan, co-manager of the Amati Aim VCT, called it a “mindset trend. People want to be entrepreneurs, hence the rise of the self-employed and the growth in the number of start-ups recently.”
Figures from the Office for National Statistics now put the number of Britain’s self-employed at 5m and rising, while data from both the Numis Smaller Companies Index and research from Deloitte’s latest economic monitor have shown a stark deterioration in the number of companies seeking a stock market listing.
In January, Deloitte highlighted the decline in the number of public companies – those whose shares can be freely traded on a stock exchange.
Its economic monitor stated: “At the end of the 20th century, there were 12,400 public companies in the UK. Since then the number has dwindled to 5,700. Private companies are on the rise, with their numbers increasing from 1.3m to almost 4m.”
However, the figures for 2000 and 2020 of public companies do not mean ‘listed’ companies; the numbers of actual listed companies are much smaller, with London Stock Exchange listings for approximately 350 large- and mid-cap companies, 620 small-caps and about 850 on AIM.
But Mr Jourdan agreed there had been a decline in listings, which he said was becoming a feature of both the US and UK markets.
“It could be that it costs more now to list, with more regulatory issues, higher legal fees and so on, but the shrinking of the listed market is something that needs to be tackled by the exchanges,” he said.
This was highlighted in the Numis Smaller Companies Index, which launched at the start of 1987, just before the Big Bang. In 1997 there were 1255 small companies on the NSCI; by 2020 there were just 346.
Nevertheless, Mr Jourdan, whose Amati Aim VCT has 65 holdings, said: “We don’t need lots of opportunities - we just need good ones.”
Also speaking at the roundtable, Will Fraser-Allen, manager of the Albion VCTs, said the growth in private and unquoted companies was definitely something he was “benefiting” from.
“Since 2001 there has been a rise in the number of unquoted companies and a very different ecosystem now of founders, so there is no dearth of companies to choose from, but the trick is to pick the ones that are good.”
Albion Capital’s VCTs largely back growth with exposure to fast-growing, unquoted smaller companies, although Mr Fraser-Allen pointed out that early stage companies - with a turnover of less than £1m and fewer than 20 employees – made up only a small portion of the overall portfolio.
However, there were concerns that Brexit uncertainty may make it less attractive for entrepreneurial spirits to launch companies, and therefore less attractive for fund managers to back the really early-stage enterprises.
Trevor Hope, a partner at Mobeus Equity Partners, commented: “There are more than 5m small-to-medium enterprises in the UK, many of which are reliant upon importing services and material as part of their offering, or exporting their goods and services or even requiring the ability to employ non-UK nationals.
“All of these areas now have a level of uncertainty. Ultimately, Brexit may create greater opportunities, but in the short-term, this uncertainty will make an already difficult job that much harder.”
The issue of fees on VCTs - including the performance-based hurdle fees some funds employ - was also discussed during the AIC’s briefing.
A couple of days after the roundtable, it was reported that a negative reaction from shareholders had prompted the board of the £76m Albion VCT to alter its plans to significantly increase the performance fee for the trust.
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