PISCES: A Lifeline for UK Capital Markets or Another AIM Misstep?

The UK government's proposal to introduce the Private Intermittent Securities and Capital Exchange System (PISCES) aims to rejuvenate the City of London by facilitating the trading of private company shares on regulated platforms. While this initiative seeks to bridge the gap between private and public markets, it has been met with scepticism from venture capital (VC) and private equity (PE) professionals.

Understanding PISCES

PISCES is designed to allow private companies to offer their shares for trading on regulated exchanges during specific periods, providing liquidity to early investors and employees without necessitating a full public listing. The London Stock Exchange Group plans to operate a PISCES venue, enabling shares to be traded on select days annually. This system is intended to serve as an intermediate step towards a public listing, offering companies a platform to access capital while maintaining certain privacy aspects inherent in private markets.

Industry Concerns

Despite its objectives, PISCES has faced criticism from industry stakeholders. A partner at a leading venture capital firm expressed doubts about the system's adoption, stating, "I just don’t see who’s going to use it." The concern is that PISCES may not address the complexities of private company financing and could inadvertently replicate issues observed in the UK's Alternative Investment Market (AIM), such as low liquidity and limited investor interest.

Hussein Kanji, founder of Hoxton Ventures, highlighted potential valuation challenges, noting that trading shares on private exchanges could lead to "a listed price to their portfolio companies that would likely be low and possibly volatile." This volatility could deter private companies from participating, as it might not reflect their intrinsic value and could introduce unwanted market fluctuations.

Comparative Analysis

In the United States, platforms like the Nasdaq Private Market have facilitated private share trading since 2013, offering a precedent for PISCES. However, the success of such platforms hinges on robust investor demand and company participation. The UK's AIM has struggled with declining listings and liquidity, raising questions about whether PISCES might encounter similar challenges. The Tony Blair Institute even suggested closing AIM due to its underperformance, emphasizing the need for a strategic approach to revitalizing UK capital markets.

MY PERSPECTIVE

While PISCES presents an innovative approach to enhancing liquidity for private companies, its success will depend on addressing the concerns of key stakeholders. Ensuring that valuations remain stable and reflective of true company worth is crucial to gain the trust of both companies and investors. Additionally, learning from the challenges faced by AIM and incorporating lessons from successful international platforms could inform the development of a more resilient and attractive market.

In conclusion, PISCES has the potential to transform the UK's capital markets by providing a new avenue for private companies to access liquidity. However, careful consideration of industry feedback and strategic implementation will be essential to realize its objectives and avoid the pitfalls experienced by similar initiatives.