Strategic enablers for the UK’s growth markets

We recommend that government and regulators work with UK growth markets and the industry to deliver action in the following areas, to maximise this potential and drive growth across the economy.

1. Establish a growth markets industry group: Government should convene a specialist group13 of experts to help it identify and enact specific ways to improve and champion the UK’s growth markets over a specified time-limited period. This non-statutory group should include growth market representatives, market practitioners, investors, issuers and regulators, with a clear commitment from all to implement its recommendations.

2. Extend support programmes for scaling businesses: Government should consider extending programmes such as those run by the British Business Bank, to include investment in UK growth companies.¹⁴ Ensuring a nurturing business environment for growth companies will be a key component of boosting the attractiveness and benefits of UK growth markets.

3. Apply a growth market lens to regulation: Policymakers (particularly in HM Treasury (HMT), HM Revenue & Customs (HMRC) and the Financial Conduct Authority (FCA)) should use one definition¹⁵ for UK growth markets to optimise clarity and consistency of policy and regulations for those seeking to invest in, or become, growth market stocks. A review of where market infrastructure rules designed for senior markets could be adapted to meet the specific needs of both companies and investors on growth markets is also recommended. Specifically, regulators should consider how REUL (retained EU Law) can be tailored for growth markets¹⁶ at the point at which the Smarter Regulatory Framework is being used to convert legislation into FCA rules.

4. Rethink marketing rules: Government and regulators should use behavioural analysis and an outcome-based approach to inform their approach to marketing rules, including Conduct of Business Sourcebook (CoBS) and Markets in Financial Instrument Directive (MiFID). Policymakers should be more granular and balanced in setting out the risks and rewards that UK growth markets offer to potential investors (given they have met market admission requirements) in comparison to largely unregulated assets such as crypto-assets, and adapt policy and regulation accordingly.

6. Review asset management reporting requirements: Excessive passive investment can lead to an over emphasis on investing in funds that track Main Market indexes. This reduces the potential demand for investment in companies on growth markets. UK regulators should review reporting requirements with a focus on their behavioural and outcome impacts, to ensure they are not too burdensome and unintentionally reduce active fund management. Requirements should include a realistic evaluation of liquidity and its perceived impact on risk.

7. Boost institutional investment into UK growth markets: Government should use policy reforms to boost institutional investment in UK growth markets. Signatories to the Mansion House Compact should consider the ease of investing in growth markets¹⁷ as part of fulfilling their commitment and specify the proportion of their funds invested in growth markets in their annual reports. Disclosures of investments in UK growth markets should be included in the FCA Value for Money Framework. The government should also consider fiscal incentives to increase investment in UK growth market shares to support the growth of the UK economy. Growth market companies that are firmly rooted in a region should have the potential to benefit from Local Government Pension Schemes (LGPS) investment by being included in the 5% local target.

8. Set out a clear strategy for retail participation: Too many UK savers are not taking advantage of the potential to build their savings and financial resilience by investing in capital markets. Government should democratise the benefits of capital market investing by setting out a long-term strategy to make investing more accessible and attractive to a broader range of individuals, contributing to inclusive growth. The strategy could be framed by three pillars:

• Understanding: A holistic, long-term, UK-wide strategic programme is needed to improve financial literacy and confidence, with clear leadership and adequate resources to widen the societal benefits of investing. The strategy should set out the overarching public policy objectives to guide the coordination of policy and regulatory regimes such as the Advice and Guidance Boundary Review (AGBR), to ensure the provision of effective targeted support for investing.
• Incentivisation: The strategy should rebalance fiscal incentives, particularly those in the ISA regime, to encourage people with adequate levels of cash savings to invest further savings in equities. It should articulate the Money and Pensions Service (MaPS) view¹⁸ that three to six months’ worth of living expenses should be held in cash, and that people should consider putting further savings into diversified investment funds that meet their risk appetite.

• Facilitation: Taking inspiration from other jurisdictions, the UK should work with our industry to consider where technological innovations could be adopted to empower retail investors to invest in local growth companies. For example: (i) institutional-level data and analysis tools, or AI-enabled ‘robo advisors’, to support confident, well informed and considered decision-making; (ii) clear pathways¹⁹ for first time investors, to guide them towards suitable entry-level investment opportunities. The government should also focus on the supply of investment opportunities by ensuring that regulatory regimes that govern the issuance of equity and the offer of financial instruments to potential investors do not discourage retail investor access, and that steps are taken to encourage issuers to include retail investors.

• We wanted long term growth capital, opposed to typically short-term capital/cycles that come with private equity.
• Public markets provided Alpha access to capital and support from some of the world’s most respected investors, whilst at the same time, management were afforded the freedom and autonomy to make strategic long-term decisions (and not tied to an exit window).
• We were able to retain and motivate our team with shares, while also attracting new talent with shares.
• We were able to leverage the `kitemark’ that comes with being a London Stock Exchange (AIM) publicly listed business, helping us acquire customers and talent.”

Morgan Tillbrook, founder and of Alpha Group International plc and CEO until 31 December 2024

Alpha was admitted AIM in 2017 with annual revenues of £8.5m (FY 2016), and a market cap of £60m. Since then, the business has moved to the Main Market and sits within the FTSE 250, reflecting the group’s increasing scale, maturity and growth ambitions. It now has annual revenues of £110m (FY 2023) with a market cap of £900m.