The idea behind PrimaryBid was simple enough: to give individual investors and shareholders a chance to participate in capital raising deals alongside larger institutional investors. A report from the Quoted Companies Alliance shows that 48 per cent of the retail investors it surveyed wanted access to these often discounted ‘primary market’ share placings (hence PrimaryBid). It seemed odd that they weren’t included already.
We’d do it with technologies that people take for granted everyday, but were not available 10 years ago. Investors would get instant notifications when companies they follow were raising capital. They’d get the chance to subscribe for shares, even when deadlines were tight. And by aggregating this retail demand into one pot, we’d convince the banks, brokers, lawyers and regulators – the guardians of London’s listed market ecosystem – that it was now easy for them to include retail in all deals. Not just easy, but also the right thing to do, meaning better outcomes for individuals and issuers just as the ‘Governance’ in ‘ESG’ was at risk of being forgotten. Our plan was to make retail inclusion the default rather than the exception.
Around 15 per cent of UK equities are directly owned by individuals, amounting to £450bn depending on the FTSE, and in some stocks retail ownership is significantly higher. But individual retail investors have traditionally found it hard to use their collective weight to agitate for change. The UK’s nominee structure does not help matters: despite ShareSoc’s valiant efforts most UK investors are merely beneficial owners and therefore unable to cast an annual meeting vote let alone demand pre-emption rights from companies raising capital. That attenuated relationship, in which corporate issuers are unable to identify or communicate digitally with their retail shareholders, seems strangely at odds with democratising forces present in almost every other industry. Could we be the ex-bankers who used the power of ‘fintech’ to upgrade the UK’s vaunted public markets? Could we give the individual shareholder a seat at the table?
More than 250 ‘primary market’ deals have taken place since March 2020, raising over £25bn in much needed capital for UK plc. On the brink of Brexit we should celebrate the dynamism and responsiveness of the UK’s capital raising regime, which funnelled much-needed funds to UK-listed companies so quickly and effectively. At the same time we felt that retail investors were being particularly disadvantaged. Dilutive equity was being raised, often at a discount to depressed share prices, and individual shareholders weren’t being allowed to participate despite the existence of a simple technology to make it happen.
An open letter (www.allinvestors.co.uk) to the boards and management teams of the UK’s listed companies – signed by all the City Grandees we could muster – made the case for including retail investors on fairness grounds. Individual shareholders, we asserted, stood ready to fund UK plc in a Great British Recapitalisation and deserved consideration. We pointed out that such retail investors were informed and active participants, in increasingly passive and quant-driven equity markets.
The City responded, jolted into action by a groundswell of retail investor support that surprised even us, and by widespread, supportive coverage for our agenda (with this magazine as an early and notable cheerleader). Since that moment, the boards of over 50 companies have included individual shareholders on their deals, ranging from established FTSE issuers such as Compass, Croda and Ocado, to growth names in the Aim market such as Open Orphan, EQTEC and SRT Marine. And thousands of investors have participated in these deals, either directly or through broker and adviser platforms connecting to PrimaryBid.
We’re all too aware that the €8m cap on undocumented deals, imposed by the EU’s Prospectus rules, stands as an artificial ceiling for retail inclusion. On a number of accelerated transactions retail shareholders have contributed nearly £40m of demand in a matter of hours, only to be scaled-back disproportionately. We’re working on it. Brexit affords policymakers an opportunity to revisit this particular cap, and we were delighted to see that Lord Hill’s forthcoming review into the attractiveness of the UK’s stock market raises the issue directly.
In 2021 we’re expecting to see UK primary market issuance dominated by brand-name IPOs, following a blockbuster 2020 in the US IPO market. It’s great news for those of us who believe in the power of the public markets, and in the long-term attractiveness of liquid, regulated equity over popular alternative asset classes such as Bitcoin and peer-to-peer. But rank-and-file retail investors are rarely included in UK IPOs, and that’s something we’re looking to change with new digital technologies and forward-thinking corporate issuers.
James Deal is chief operating officer of PrimaryBid