‘We’ve just run out of time’: IPSX CEO on winding down the exchange

The chief executive of the real estate-focused IPSX stock exchange says its goal of revolutionising property investment remains right but “a lot of bad luck” has left it with no option but to wind down the business. IPSX Group said on Monday that it had taken “the regrettable decision to commence the orderly wind-down of the operations of IPSX and close its markets”. It said it could no longer meet the regulatory capital requirements that the Financial Conduct Authority, the UK’s financial watchdog, demands from a recognised investment exchange. A new backer for all or part of the operation could yet appear, but unless that happens the group will likely be liquidated following the wind-down. That will end a years-long effort by a group of industry figures and firms to create and scale a new market for real estate investment, one that would ideally have allowed retail investors to buy shares in single-asset REITs. See also: Five years, three floats and a wind-down: how IPSX tried and failed Group chief executive Roger Clarke, who joined the company from backer M7 Real Estate in 2019, acknowledges that he sounds “very defensive” as he outlines the factors that led to just three listings taking place on the exchange over almost five years: the chaos of Theresa May’s government; the damage done to the UK’s appeal as an investment destination after Boris Johnson prorogued parliament; the Covid-19 crisis; the interest rate cycle turning; the war in Ukraine; the disastrous mini-Budget of Liz Truss. “There always seems to have been something out there that was making things really difficult,” Clarke tells EG. “It sounds like a real sob story, but we have hit a lot of bad luck.” Others in the industry have seen IPSX’s problems as closer to home, with various figures outside of the operation over the years describing it as “a solution without a problem” and noting the unavoidable fact that the handful of assets listed were linked to M7 and its founder Richard Croft, a backer of the exchange and one of its loudest evangelists. For his own part, Croft has never made a secret of the fact that he had wanted other issuers to go first. Speaking with EG in 2021 after the float of Mailbox REIT, formed to hold the Birmingham office and retail block, he said: “It’s a bit like a new roller-coaster. It looks absolutely terrifying. Everybody says ‘this is going to be an absolute blast – but I just want somebody to test it to make sure we don’t fall off’.” Right idea, wrong time? Clarke is adamant that the idea of IPSX is right. “The proposition, I am convinced, is still one that the world needs,” he says, adding: “This is an idea whose time is coming. But we have struggled to meet our business plan… Meanwhile, the FCA, quite rightly, is hugely focused on the regulatory capital position of firms they look after. We have reached a point where we haven’t run out of cash but we don’t have sufficient cash for our regulatory capital requirement and they need us to start an orderly wind-down.” With a fixed cost-base and regulatory capital needed, money has long been an issue for IPSX. Its last fundraise, launched in the summer of 2021, secured close to £10m from 60 new investors. The company’s last set of accounts, covering the 12 months to 30 June 2021, showed a loss of £5.6m on revenue of £167,844. Expenses over the year stood at £5.7m. The group spent the summer trying to raise fresh funding across various deals. “We’ve just run out of time,” says Clarke. He shies away from giving a figure that the company was targeting – it would depend on the type of transaction struck, he says. But those close to the company know that however much it could have raised would have been spent quickly. “It burns cash,” says one. Clarke has not completely lost hope that help could appear. Some discussions with possible buyers or investors are ongoing, he says. “The fact is that although we have to go into an orderly wind-down process, this market continues to operate normally until that process is over,” he adds. “And that will take a period of weeks and months to happen. So it’s not impossible.” An expected wind-down period of 90 days will give issuers on the exchange time to make alternative plans for their vehicles and assets. Until then, the shares will remain listed on the exchange, which will be closed to new business. If no investor makes a move, a members’ voluntary liquidation is the natural next step. Sticking together Clarke appears visibly worn down by weeks of effort to salvage the business when he speaks with EG by video call. He and the team have been in “weekly and sometimes more often” contact with the FCA over the summer, he says. And then there has been the matter of keeping the team informed. “I’m very proud of the team that we’ve built,” Clarke says. “It’s not a low bar at all for the FCA to give you this licence to be an RIE. You have to have very competent, talented people in a number of different roles across surveillance, regulation, compliance, technology, operations – quite apart from the business development side of life. Keeping that team together through the summer has been important. “A lot of people [say] it’s a great asset to have, a regulatory licence to be able to operate, and it is. But that asset is no more or less than the people that the FCA approves. I have been open with my team throughout the summer about the challenges we face and what we’ve been trying to do about it. And they have been terrific at backing the concept and sticking together. We haven’t lost anybody.” A long-time champion of the City of London and the UK public markets, Clarke knocks back a question over whether there could have been any policy changes that would have helped IPSX succeed. But he expresses some longing for days gone by in which the public markets seemed to embrace entrepreneurialism more warmly. “The sort of IPOs we find get coverage in the mainstream financial press all the time are the likes of ARM doing their $10bn fundraise in New York rather than London,” he says. “That’s not really what the growth capital markets and smaller investors [in the UK] are focused on. There are thousands and thousands of small private companies that are looking to do smaller IPOs. “I think that our capital markets ever-increasingly seem to be geared towards bigger and bigger companies. And the cost of compliance means that asset management companies are seeing ever-increasing consolidation, which drives them towards needing to invest in bigger and bigger companies… It is a pity that we don’t have as vibrant a small-cap equity market today as we had 30 years ago.” Clarke tries to find silver linings in conversation over the exchange’s fate. “It’s easy to see this as a failure,” he says. “But actually it’s extraordinary how much we’ve achieved in terms of how very hard it is to build a 21st century digital stock market with all of the various stages that need connecting.” Clarke and team will be eager to see if that is a foundation someone else now wants to build on. To send feedback, e-mail tim.burke@eg.co.uk or tweet @_tim_burke or @EGPropertyNews Photo from IPSX