Dan Jones  

Trust IPOs may signal new era

Dan Jones

Traditionally, Money Management readers have been big supporters of investment trusts. But this stance has looked a lonely one among the adviser community at times in recent years.

Platforms’ inability – or unwillingness – to include trusts in their product ranges, the ubiquity of open-ended active funds, and closer examination of charges have made life difficult for trusts focusing on traditional asset classes.

There are exceptions, of course, but by and large the closed-ended space has had to double down on niche investment opportunities in order to make a success of things: specifically, the kind of illiquid asset that it would simply be imprudent to hold in an Oeic or unit trust. 

Demand for such vehicles doesn’t look like it will dip any time soon. In the meantime, platforms have begun to get their act together, and so too have trusts when it comes to fee structures – the widespread scrapping of performance fees, for example.

Then suddenly this summer another shoe appeared to drop. Not one, but four equity-focused investment trusts announced plans to list this autumn.

In journalistic parlance, two of anything constitutes a trend, so four must surely represent definitive change. What else could explain so many different companies suddenly deciding that a new closed-ended stocks and shares proposition is not beyond the pale after all?

The reality is slightly more complicated. It’s easy to be a fan of the one-shot-at-fundraising trust structure when you’re Terry Smith, whose ability to attract investor money at present is rivalled only by Neil Woodford in his heyday. 

Elsewhere, however, Mark Mobius’s new venture realised just half of its fundraising target, albeit at a difficult time for emerging markets generally. And the popularity of the British Empire trust’s attempted Japanese spin-off remains to be seen.

The fourth trust to be launched, by Merian, is the most intriguing. Calling it an equity-focused portfolio is slightly misleading; it will buy unquoted companies, in keeping with the high-profile examples of Baillie Gifford and Woodford IM. 

Unlisted equity investing could be said to bridge the gap between the traditional asset classes and the more idiosyncratic pursuits favoured by trusts in recent years. It is this model that perhaps has the best chance of spawning further closed-ended imitators in future.

Fundraising totals for Merian and BVI will not be announced until after this magazine goes to press, and there are still structural difficulties facing the sector: the rise of model portfolios is making it tough for many advisers and wealth managers to buy investment companies in bulk, for example. But the latest developments show there’s more life in the structure than some had previously credited.