Small and mid-cap fund managers are looking to invest in under-valued companies with good fundamentals, recurring revenues, a good management team and a sustainable competitive position in 2014.
That is according to research carried out by Baker Tilly and the Quoted Companies Alliance.
The Small and Mid-Cap Investors Survey was carried out by YouGov, and included in-depth interviews with some of the UK’s top senior fund managers from organisations including Artemis Investment Management, Aviva Investors and Legal & General.
The report gives insights into how fund managers make investment decisions and investment trends in the small and mid-cap quoted company sector including:
· Investors prefer secondary fundraisings over IPOs. Many said they would prefer to invest in a company that they already have a stake in, with the majority saying they saw themselves as long-term investors, with investments lasting between three and five years. The majority of investors also said they would expect to see significant improvement in a company’s performance within the first year of investing.
· Despite many investors saying they didn’t focus on a particular sector, technology companies were frequently mentioned as being of interest to fund managers, as well as support service and media companies due to their ability to generate recurring revenue.
· Although the investors didn’t identify any particular tax changes as being critical for their investment objectives, meeting the qualifying criteria to attract venture capital trusts (VCT) investment could importantly widen the range of available investment.
· There are many divergent views and varying investment criteria amongst fund managers, for example in respect of income, growth or sector focus, and so it is important that small and mid-cap companies seeking investment carry out appropriate research to understand investor requirements prior to meeting with fund managers.
Chilton Taylor, Baker Tilly’s head of capital markets, says: “As a result of the UK beginning to emerge from the recent economic downturn, the IPO market is starting to open up, and quality small and mid-cap stocks are likely to have the potential to achieve a higher growth than the large blue-chip companies. Investment opportunities in the small and mid-cap market are on the rise, and so it is crucial that companies start to view fund managers as potential investment partners who assist in developing and growing their business and operations, rather than just as a source of funds.
“By understanding the mindset and needs of some of the UK’s key investors, business owners can put themselves at a positive advantage when looking for investment over the coming year.”
Tim Ward, chief executive of the Quoted Companies Alliance, says: “Growth needs the fuel of equity finance. This survey will help quoted companies to approach seeking equity in a more intelligent manner. Funds are available and awareness of investors’ needs is crucial for these engines of growth to attract such investment.”
