Private investors: their participation is of primary importance

Are retail investors going to save London’s capital markets? Nigel Lawson, UK chancellor and former Lex writer, promoted private share ownership during the Thatcher era. Now City cheerleaders hope to woo them once again. Aggregation platforms such as PrimaryBid and Rex are on hand to involve private investors in primary offerings.

Historically, retail stock pickers have mainly participated in the secondary market. Primary offerings have been reserved for institutions. That is particularly true for deals where speed is vital, such as accelerated book builds. The exception is rights issues, where existing shareholders have pre-emption rights.

But rights issues barely exist any more. During the pandemic, rules were relaxed. Companies no longer need to offer shares to existing holders when raising more than 10 per cent of their capital. Now they can raise up to 20 per cent by other means.

It seems only fair that retail investors should be able to participate in such deals, recompensing them for lost pre-emption rights.

Increased retail participation should provide extra capital and liquidity. Individual investors trade often and in small lots. Higher volumes make the market more attractive for institutions too.

Technology firms hope to capitalise on the opportunity. The largest, PrimaryBid, sends out push notifications for deals. Investors can buy stock directly or through a broker. Rex, a platform relaunched by Peel Hunt, relies on a network of brokers to funnel orders.

These platforms are promising but small. Bankers seeking to complete a book build do not see much demand coming from them.

There is another difficulty, which promoters such as Lawson could not overcome. Share ownership is not part of popular culture in the UK the way it is in the US. In addition, America produces innovative companies like Apple and innovative products such as exchange traded funds. These do much to bring out the inner capitalist.