Richard Wilson of Interactive Investor, another fund shop, said the process was akin to owning 25pc of a holiday home and finding out that the other owners had taken 10pc off you at half the price.
“The fact that it’s legal is astonishing,” he said. “It flies in the face of the integrity of the financial system. We need to do what we can to stop this and the legal recourse needs to be tested. Under the current rules companies have been allowed to sidestep DIY investors.
“We want the British public to invest in UK plc but then we run over their rights.”
Others argue that there are legitimate reasons for companies to act in this way, however, and that the trampling of shareholders’ rights is an unfortunate consequence of cash emergencies. Companies can sometimes be on the brink of failure and engaging with several thousand smaller shareholders spread across a multitude of brokers can be time consuming.
Andy Bell, the head of AJ Bell, said he could sympathise with companies given the haste required to raise funds.
“They have to get this process done in hours so sometimes it’s better to sell the shares at a discount to a handful of large investors than have a fairer price that includes DIY investors,” he said. “If retail investors were classed as a single investor it would be easier but the problem is how fragmented they are.”
However, the City watchdog has become aware of the growing unrest among smaller investors and their sense of unfairness when they suffer losses while fund managers make quick profits buying discounted shares.
It increased the limit to 20pc in April but by the end of May it had issued further guidance telling companies to consider including private investors. However, it also said it would be understanding if this advice was bypassed because of time concerns or “legal risks”.
Mr Wilson said: “The FCA’s response is like saying ‘please be good’. It’s fluff. We need to change the rules.”
The change in the FCA’s stance came after a campaign called “All investors matter” called on company boards to stop ignoring smaller shareholders’ rights. It was spearheaded by Primarybid, a platform that links companies that issue shares with private investors, and was supported by senior executives at a range of fund houses, brokerages and shareholder campaign groups.
Anand Sambasivan of Primarybid said private investors had always been at the back of the queue, but the main problem was with company bosses thinking that involving private investors took too long. The firm has successfully connected private investors with fund raisings for Compass Group, the catering company, and IWG, the outsourcer.
“Timing is not the issue. For some of our fund raisings we managed to get £25m in a matter of hours. The issue is what businesses are allocating to retail investors,” he said.
“Markets are public or they’re not.”