Golden age

London holds first place as the leading financial centre in the world, according to a number of recent reports. AIM shares the crown as the top junior market, having attracted “more listings than all of its global rivals combined”, according to a report published by the City of London. An independent report by the London School of Economics makes similar claims.

There is no doubt that AIM has made a large contribution to London’s success, but this also applies vice versa. The reports make interesting reading and some of the findings will probably cause some serious eyebrow-raising, particularly in New York.

London has overtaken New York in attracting more IPOs and is also now the home of 21 per cent of global hedge funds. So what is driving London’s success story?

• Large pool of capital

• Availability of skilled people

• Professional fees

(compared to New York)

• Transaction costs (compared to New York)

• Level of regulation

• Safe haven from Sarbanes-Oxley

• Tax regime

• Time zone

• Language

It’s interesting to note that the prophets of doom, who were advocating membership of the euro as being essential for London’s survival as a leading financial centre, have been totally discredited. As an economist once remarked: “What does it matter what currency a stockbroker uses to buy his lunchtime sandwiches?”

There are some words of warning, however, as the reports highlight London’s transport system, high office costs and uncertainty over the future of corporate tax rates as being potential handicaps to London keeping its crown.

The London School of Economics report which focused specifically on AIM came up with some interesting findings that explain at least some of the reasons for its success and popularity:

• The failure rate is low at less than 3 per cent. This is a remarkable achievement given that many AIM companies are early-stage or start-ups and also in risky sectors

• Liquidity of larger AIM companies is comparable with companies of a similar size on the main market

• The light-touch regulation works and is the cornerstone of AIM’s competitive strength

• After-market returns on newly-admitted AIM companies outperformed the market as a whole

• The capital raised has increased by nearly 800 per cent over a three-year period, reaching £15.7 billion in 2006

• AIM is now recognised throughout the world

• It is the market of choice for early-stage high tech companies.

Put all these factors together and it’s easy to see why AIM leads the world. However, as the US experience of Sarbanes-Oxley legislations shows, a heavy-handed approach could easily kill the goose.