Following on from Part One, this is Part Two of a summary of the Small Cap Network’s recent ‘Escaping the Liquidity Trap’ Forum Event at the London Chamber of Commerce.
Given the breadth of the discussion and the number of participants, this summary has been produced on a best endeavours basis. As it was a lively debate between multiple participants, a number of the comments may be contradictory and – for the avoidance of doubt - the views expressed below obviously reflect those of the speaker in question, rather than the Small Cap Network as a whole.
Part Two summarises the responses covering the following main questions:
- Why aren’t more institutional investors more active in the SME space?
- What can I do post-placing to diversify my shareholder register?
- What actions can management take to increase access for retail investors?
- Should I consider commissioning independent research?
- How does London compare with overseas SME markets?
- What are the advantages of an Order-driven vs. Quote Driven Market?
- What impact does the tax environment have on liquidity?
- Concluding Remarks
Why aren’t more institutional investors more active in the SME space?
- There seems to be a growing lack of interest in small caps amongst institutional funds and advisers as the financial industry chases scale.
- Gervais Williams has talked of the difficulties of managing the small-cap asset class, where the institutional and mutual fund outflows have been ongoing for a decade.
- Liquidity is a major concern for institutional investors in SMEs. There’s a phenomenon which is referred to as a ‘lobster pot’, a lobster can swim into the pot but it’s extremely difficult to find its way out again. Perhaps that’s why a lot of institutions are wary about going into this space. Your shares are at the mercy of the market.
- Part of this may however be cyclical - we have had a period of credit expansion where large cap stocks leveraged up, paid very healthy dividends, so that’s where the money is starting to flow to and we‘re about to see a point in the cycle where that might change and we might revert back to a period that existed prior to the credit expansion. Asset managers are going to struggle to find decent returns in…
