Strong equity investment is a key feature of a healthy economy, enabling both economic recovery and continuing growth. Investment allows those with entrepreneurial ideas to secure the funding they need to make their ideas a reality. If the ideas are successful and well-received by their customers then the business can expand, not only providing a return on investment but also generating new economic activity and, often, increasing productivity. Serving this growth is the very reason capital markets were created.
Xavier Rolet, CEO of the London Stock Exchange Group, has stated that businesses listed on the Alternative Investment Market (AIM) have created 731,000 jobs, paid £2.3bn in tax and added £25bn to GDP. These are impressive figures, demonstrating the power of equity investing to grow an economy.
As Rolet further notes, there are now about 580,000 start-ups founded in the UK a year, each with the potential to become a significant company contributing to the UK economy. These micro companies are assisted by funding from Venture Capital Trusts (‘VCTs’) and Enterprise Investment Schemes (‘EISs’), helping them grow from an initial idea.
However, despite these positive figures the UK actually lags behind other similar economies in using equity investment to fund small companies. For example, in the US, equity investing makes up 80% funding for SMEs, compared to only 20% in Europe. Rolet contends that this, in part, explains why the US recovery has so far been faster than the European recovery. More optimistically, this disparity can be seen as an opportunity for European countries, such as the UK, to accelerate their growth by increasing the amount of equity available for SME funding.
The UK economy is growing strongly, in part thanks to investment in growing businesses. However, there continues to be ample opportunity for astute investors to become involved and make a healthy return while increasing UK economic activity.
Please contact Cantab Asset Management for further advice on VCT, EIS and AIM investing.
Risk warnings
This document has been prepared based on our understanding of current UK law and HM Revenue and Customs practice, both of which may be the subject of change in the future. The opinions expressed herein are those of Cantab Asset Management Ltd and should not be construed as investment advice. Cantab Asset Management Ltd is authorised and regulated by the Financial Conduct Authority. As with all equity-based and bond-based investments, the value and the income therefrom can fall as well as rise and you may not get back all the money that you invested. The value of overseas securities will be influenced by the exchange rate used to convert these to sterling. Investments in stocks and shares should therefore be viewed as a medium to long-term investment. Past performance is not a guide to the future. It is important to note that in selecting ESG investments, a screening out process has taken place which eliminates many investments potentially providing good financial returns. By reducing the universe of possible investments, the investment performance of ESG portfolios might be less than that potentially produced by selecting from the larger unscreened universe.
