Closed ended  

Investment trusts allowed further share issuance

Investment trusts allowed further share issuance

Investment trusts can now issue twice as many new shares without having to issue a revised prospectus, which should allow the vehicles to grow without incurring excess costs.

The Association of Investment Companies (AIC) confirmed that the maximum threshold of new shares that investment companies can issue before publishing a new prospectus will increase from 10 per cent to 20 per cent this summer.

This change will give closed-ended funds greater flexibility to issue more shares without having to spend money to prepare a new prospectus.

Listed companies are currently required to prepare a prospectus when issuing shares representing more than 10 per cent of the number of existing shares measured over the previous 12 months.

Ian Sayers, chief executive of the AIC, said that the ability to issue more shares without a prospectus will allow trusts to grow at a lower cost, but added that shareholder approval will still be required.

“This should give investment companies more scope to grow cost-effectively, helping to increase liquidity and to spread costs.  We also welcome the swift introduction of this change, which will allow investment companies to make the most of this opportunity from this summer.”

Alan Brierley, analyst at Canaccord Genuity, called the move “sensible” as it gives investment companies to raise more money without the costs of another prospectus.

The costs of a prospectus is dependent on the complexity of the underlying fund, as there is no set cost.

“I think it will be most useful for those smaller real asset funds as it will give them greater flexibility to grow on a more cost efficient basis,” Mr Brierley said.

julia.faurschou@ft.com