Financial services companies that service private investors have united to call on the numerous companies launching new share issues to raise cash to tide them over the Covid-19 pandemic to stop cutting their clients out. Ordinarily, every existing shareholder must be offered to opportunity to participate in new equity issues. However, that first refusal rule has been suspended until September and there is rising anger that is short-changing private investors.
Over the weekend, the upper management and owners of investment platforms, fund managers and small investor groups have published an open letter calling on public companies to find a way to maintain the rights of their clients and members.
Andy Bell and Peter Hargreaves, respective co-founders of market-leading investment platforms AJ Bell and Hargreaves Lansdown, have both signed the letter. As has Martin Gilbert the Standard Life Aberdeen vice-chairman and Gavin Oldham, vice-chairman of The Share Centre and Richard Wilson, CEO of Interactive Investor.
The negative impact on private investors is exacerbated by the fact that the share issues currently coming to market are often at a healthy discount to current share prices. Institutional investors, and company directors, to participate in a share issue by online fashion retailer Asos two weeks ago have already made a 50% paper profit on their investment.
Most other share issues that have taken place over the past few weeks have also seen investors profit handsomely thanks to a stock market rally. Hays, Hotel Chocolat, Informa, Joules, MJ Gleeson, SSP and WH Smith are among the London-listed companies to have already strengthened their balance sheets through the issue of new shares.
Another 35 companies at least are, believes one City fund manager anonymously quoted by The Times newspaper, preparing share issue fundraises over the next few weeks.
The joint letter published over the weekend read:
“While we recognise the need for businesses to raise equity capital in an expedited fashion, we are concerned that no protections are being afforded to retail investors.”
“We encourage UK plcs and their boards to protect individual shareholders and employees by respecting their rights to participate alongside the institutional investors, management teams and board members.”
The letter also makes mention of fintech services available that make it more convenient for companies to manage the participation of multiple smaller private investors. The app ‘Primary Bid’ is one such service. It combines smaller investors into one larger buyer before dividing up the shares acquired based on the amount of capital contributed to the joint pot. This gets around the argument of companies that it is logistically impractical for them to manage thousands of small investors participating in an equity issue.
Primary Bid founder and CEO Anand Sambasivan comments:
“It seems incredibly unfair that retail investors can’t participate in these deals. The technology exists.”
Around 9.5% of all of the equity issued by FTSE 100 companies is held by private investors. That increases to 19.4% for companies outside of the FTSE 100. Figures are based on those published by the Office for National Statistics.