This article is written by:
Judith MacKenzie
Partner and Head of Downing Fund Managers
The structural case
Short-term sentiment tends to dominate headlines. However, in my experience, long-term outcomes are usually driven by something else: structural change.
When I look at AIM today, I see a number of structural forces aligning - not dramatically, but meaningfully.
None of them alone guarantees a shift. But taken together, they suggest that the market backdrop is improving in ways that are easy to overlook.
They also point to something more fundamental: that AIM deserves to be seen first as an investment for long-term growth capital, with a valuable tax advantage attached, rather than the other way around.
1. Estate planning is being reset
The inclusion of pensions for Inheritance Tax (IHT) from April 2027 is one of the most significant changes to estate planning in decades.
It challenges a long-standing assumption that pension wealth can sit outside the estate indefinitely.
As that changes, advisers will need alternative tools that combine:
AIM has always offered this combination and it becomes more relevant as other options become less effective.
AIM was previously viewed as a niche estate planning solution. As pension changes come into effect, AIM’s role as a growth investment, which also carries a meaningful tax benefit, becomes far more relevant in the new estate planning landscape.
2. The valuation backdrop is already supportive
While policy changes take time to play through, the valuation environment is already doing part of the work.
AIM and UK smaller companies more broadly have gone through a prolonged period of de-rating. At the same time, many underlying businesses have continued to grow and strengthen.
Our view, supported by the data in the Case for AIM report, is that this disconnect reflects sentiment rather than fundamentals.
This matters, because sentiment can change much faster than fundamentals.
3. Capital is starting to flow back into the ecosystem
There is also a broader effort underway to channel more capital into UK growth companies.
Initiatives such as the Mansion House reforms and the expansion of the British Business Bank are designed to improve access to funding and encourage long-term investment into UK assets. AIM sits at the heart of that ecosystem.
Even modest increases in institutional participation have the potential to improve liquidity, support valuations, and broaden the investor base.
4. The market itself is evolving
AIM’s regulatory framework is being updated to make it more attractive to founder-led businesses.
Changes such as more flexible share structures and streamlined admission processes are aimed at encouraging high-quality companies to list. This matters for investors.
A deeper, higher-quality pool of companies improves the opportunity set, particularly for active managers focused on selective stock picking.
5. A stronger, more resilient market base
Finally, the market structure itself has been through a reset.
There are fewer companies listed on AIM today, but in our view they are better quality.
Capital is more concentrated in businesses that are proven, cash-generative, and better positioned for long-term growth.
That is not always reflected in short-term performance, but it shapes long-term return potential.
From tax tool to investment growth
Taken together, these shifts point to a change in how AIM should be understood. For many years, it was viewed as a niche estate planning solution; however, we believe that perspective is now outdated.
As pension IHT benefits disappear, investors and advisers need to rethink how wealth is structured across generations. In that environment, AIM is not simply a tax-planning tool; it is a source of long-term growth capital with a valuable tax advantage attached.
That distinction may seem subtle, but it could become increasingly important over the coming years.
Why timing still matters
I am not making a short-term market call. Sentiment can take time to turn, and volatility is part of this asset class.
But structural shifts like these tend to matter most at the point when they are least visible in prices. That is often when the opportunity is greatest.
At Downing, we have invested in AIM through multiple cycles. The pattern is familiar: periods of dislocation, followed by recovery as fundamentals are re-recognised.
We believe the current environment has many of those characteristics.
For investors prepared to look beyond near-term noise, this is more than a tax-efficient option; it is a compelling investment opportunity in its own right.
Download The Case for AIM for a deeper look at these structural shifts and how the Downing AIM Estate Planning Service is positioned to capture them.
Important notice
Past performance is not a reliable indication of future performance.
This article is intended for financial advisers and has been approved and issued as a financial promotion by Downing. Any personal opinions expressed are subject to change and should not be interpreted as advice or a recommendation. Capital is at risk and investors should note that their investments can rise as well as fall and investors may not get back the full amount invested. Downing is a trading name of Downing LLP. Downing LLP is authorised and regulated by the Financial Conduct Authority (Firm Reference No. 545025). Registered in England and Wales (No. OC341575). Registered Office: 10 Lower Thames Street London EC3R 6AF.
