AIM has received a much-needed boost as institutional investment in the market rises for the second year in a row.

Institutional investment in AIM-quoted companies has risen for the second consecutive year, up 14 per cent on 2010 to a total shareholding value of about £37.3 billion, new research has revealed.

Institutions account for 54.2 per cent of the investment in companies on London’s junior market, down from 55.5 per cent in 2010, finds research from Growth Company Investor, a sister publication to Business XL, conducted in association with Religare Capital Markets.

Other major shareholding groups are individual investors, with 33 per cent, and directors of AIM-quoted companies, with 13 per cent.

Institutional inflow

The report, which provides information on how much institutional investors have invested in AIM and where they are putting their cash, finds that firms have £37.3 billion invested, up from the £32.7 billion reported in the 2010 survey.

BlackRock remains the largest individual institutional investor on AIM, and its lead over the second-placed institution has increased. This year, Fidelity has risen above Invesco to reach number two in the list. Fidelity has £899 million of investments, but this is less than half the value of BlackRock’s holdings.

The value of BlackRock’s total investment in AIM has jumped from £1.24 billion to £1.92 billion, while the number of investments has risen from 130 to 141. The 55 per cent increase in the value of its holdings follows the 60 per cent increase achieved by the fund manager last year.

BlackRock dominates investment in companies valued at more than £50 million. However, when it comes to companies valued at less than this amount, Henderson Global Investors, AXA and F&C are more prominent.

Henderson has the largest number of investments in AIM companies, following its acquisition of Gartmore, and it is particularly strong in the area of companies worth up to £100 million. Henderson has 167 investments, 148 of which are in companies capitalised at less than £100 million. The majority of these investments are in companies valued between £10 million and £50 million.

Investment in emerging markets-based companies makes up almost half (48 per cent) of all BlackRock’s holdings, and it now has shares in 43 companies operating in these regions, up from 34 last year.

Rick Thompson, head of London listings and broking for investment banking at Religare, notes that the firm’s increasing involvement in emerging markets has become widespread across the market, commenting, ‘The report highlights the continuing longer-term trend towards international investment.’

Thompson adds that the most active increasing their exposure to these emerging markets, with the top ten investors accounting for £4.14 billion of investment in these territories, up from a previous sum of £3.79 billion.

In total, institutional investment in emerging markets-based companies on AIM amounts to some £15 billion, marginally higher than investment in UK-focused concerns.

However, Thompson says that investors are not indiscriminate in their approach towards faster-growing regions. ‘As ever, they will be looking for good growth stories, but in particular those with quality management teams and strong corporate governance,’ he states.

African Adventure

Africa remains the second-largest overall region for institutional investment in terms of value and number of investments. The value of shareholdings in companies focused on the continent has risen from £4.75 billion to £5.51 billion. Its dominance is largely due to the prevalence of mining and oil and gas companies on AIM.

These two sectors account for a quarter of AIM’s total number of companies but more than two-fifths of its market capitalisation. The skew towards the natural resources sector is even more marked when it comes to fundraisings, with the majority of money raised by existing AIM companies so far this year having gone into these sectors.

Mining remains the biggest sector for institutional investment but investment in oil and gas grew faster. The value of the investment in mining grew from £6.13 billion to £6.62 billion. Oil and gas investment jumped from £4.46 billion to £6.18 billion. Together the two sectors account for a third of institutional investment in AIM. Financials and property are other sectors where there is significant institutional investment.

Institutional Investors in AIM 2011 contains exhaustive rankings of the market’s biggest investors broken down by sector, size and territory of investee companies (as well as exclusive insights into the concerns of leading fund managers).