Investments  

SNAPSHOT: Alternative assets stay in vogue

One of the themes that played out in the investment trust industry last year was the rise in popularity of alternative assets.

It’s a trend that shows no sign of abating in 2015.

There were a number of new issues in 2014, with launches generally coming from the higher-yielding alternative assets sectors, such as the AIC Property, Sector Specialist: Infrastructure – Renewable Energy and Sector Specialist: Debt sectors. The Association of Investment Companies (AIC) reports the average yield for those new issues generating a dividend is 4.9 per cent.

Article continues after advert

The Kennedy Wilson Europe Real Estate investment trust, which sits in the AIC Property Direct – Europe sector, launched with assets of £910m in February 2014. It was the largest new issue of the year and the fourth-highest new issue of the decade, the AIC confirms.

In the AIC Sector Specialist: Debt sector, the Blackstone/GSO Loan Financing investment trust was the second-largest new issue of 2014, raising £206m, followed by P2P Global Investments in the same sector, which raised £200m.

Jemma Jackson, PR manager at the AIC, says: “Investment companies have tended to be the vehicle of choice in the alternative assets space due to the flexibility of the closed-ended structure. Managers do not have to sell illiquid stock to meet redemptions.”

Ms Jackson notes that last year the largest issuance from existing companies tended to be in the alternative assets sector, but highlighted there was a “good deal” of issuance activity among more conventional companies too.

Alex Barr, manager of the Aberdeen Private Equity Fund, suggests: “Yield and increasing the number of uncorrelated sources of returns in a portfolio is a big part of investors’ desire to access those asset classes.”

He adds: “Where there is appetite and desire to invest, there is normally opportunity. That demand can clearly play out in two different ways: it can play out as appetite for new vehicles, or they can buy existing vehicles with the implication being that the most attractive asset classes in existing vehicles either stay at premiums to net asset values or, if they are on a discount to net asset value, you may see a closing of that discount to net asset value.”

Ms Jackson notes the rise in investment trusts investing in alternative assets has also been driven by the demand for income. This will surely continue to grow now the government’s pension reforms have come in and those approaching or in retirement seek income.

In March 2015, the AIC reports, there were two new issues in alternative assets: Sequoia Economic Infrastructure Income, which sits in the Infrastructure sector, and VPC Specialty Lending Investments, which is classed as Sector Specialist: Debt. “With recent data indicating that low interest rates are here to stay for a good while yet, it seems likely higher-yielding investment companies will remain in vogue,” Ms Jackson says.

Ellie Duncan is deputy features editor at Investment Adviser