Major investment trust providers have cast doubt on hopes that the industry will get a boost from the pension reforms due to come into effect in April 2015.
Aberdeen Asset Management, Baillie Gifford and Henderson Global Investors have said they do not expect the pensions overhaul to lead to increased demand for trusts.
The warning comes as large numbers of asset managers have been launching products and changing existing offerings to appeal to retirees by April, when the need to buy an annuity will have effectively been scrapped.
Commentators had suggested investment trusts could see a surge in interest due to the focus many have on long-term income generation.
But a spokesperson for Henderson said: “While the new pension rules enhance the attraction of investing in a pension, because of the relaxed withdrawal rules, we feel it will not necessarily increase the demand for investment trusts.”
William Hemmings, head of closed-ended funds at Aberdeen, said: “I don’t think the pension reforms will have an immediate effect on demand for trusts in terms of a pool of new investors.”
James Budden, director of retail marketing and distribution at Baillie Gifford, said most firms looking to tap into the demand would look to launch open-ended funds rather than closed-ended funds as “it is just far easier to take that route”.
But investment trust providers were still hoping to find a way to access this new area of the market.
Henderson pointed out that pension advisers and other financial advisers were likely to recommend multi-asset portfolios as the most appropriate solution.
Therefore, Henderson’s strategy has been to engage with the managers of multi-asset funds to get more trusts into their portfolios.
Meanwhile, Baillie Gifford said it did not have plans to launch a multi-asset investment trust, but said it would look to acquire one if the company was offered the chance.
Mr Budden said: “We have a mixed-asset team who would like the chance to manage an existing investment trust, if [there is] one out there that wishes to take a similar path to British Assets.”
The British Assets Trust, which, pending shareholder approval, is due to be taken over by BlackRock, is aiming to alter its investment strategy to target retirees.
The company is seeking shareholder approval to change to a new multi-asset strategy that will aim to grow its dividend in line with inflation.
The news that trust providers may not be launching a spate of new products comes after advisers urged asset managers not to saturate the market with unnecessary new products ahead of the pensions overhaul.
But Annabel Brodie-Smith, communications director at the Association of Investment Companies (AIC) – which is the trade body that represents the closed-ended industry – disagreed with the asset managers’ pessimistic outlook.
“Demand for investment trusts is at an all-time high and I can only see the pension reforms increasing this demand,” she said.
Trusts may revamp investment strategy to appeal to pensions market
Although investment trust providers have expressed scepticism about the demand for their products following the pension reforms, analysts at Winterflood Securities have predicted more trusts might seek to move to a multi-asset mandate to tap into any demand.
Winterflood expects other trusts to follow the lead of the British Assets Trust, whose decision to revamp its investment strategy to appeal to the pensions market was described by the analysts as an “inflection point”.
Winterflood analysts Simon Elliott, Kieran Drake and Innes Urquhart said: “We suspect many across the industry will monitor British Assets’ progress carefully and it seems likely that others may consider following its lead.”
The analysts said investment trusts were an ideal choice for retirees as they were able to support a high and growing dividend since their fixed pool of assets allowed them to have “revenue reserves”.
“In theory, this should hold huge appeal to retirees seeking to invest their pension pots in funds that provide attractive and reliable levels of yield,” they said.
