Talking Point  

Trust launches led by demand for alternatives

Trust launches led by demand for alternatives

Four investment trusts have launched initial public offerings (IPOs) so far this year,  figures from the Association of Investment Companies (AIC) show, with the trade body citing demand from investors to access alternative assets through the closed-ended structure.

Marble Point Loan Financing, Augmentum Fintech, Baillie Gifford US Growth and JPMorgan Multi-Asset have all entered the market in 2018.

The number of new issues, where established companies list shares on the open market for the first time, set a record in 2017 when there were 15 IPOs, with alternative assets having dominated the list of new issues. 

A further three – Gore Street Energy Storage Fund, Odyssean Investment Trust and Fundamentum Social Housing Reit – have announced their intention to float in 2018, the AIC confirmed.

An intention to float from Global Diversified Infrastructure failed to meet the minimum fundraising and is no longer going ahead.

Annabel Brodie-Smith, communications director at the Association of Investment Companies (AIC), said: “Investment companies investing in alternative asset classes have dominated the list of new issues over recent years.

“Also, 2017 was a strong year for IPOs, and secondary fundraising reached an all-time high. There was a total of 15 IPOs in 2017 and about three quarters of these were in alternatives.”

She continued: “The strong markets over recent years have provided a good environment for investment company IPOs, although markets have been more volatile this year.

“As markets play a role in investment company IPOs it’s impossible to predict what the total number of IPOs will be this year, but there is demand from investors to access alternative assets in particular through the closed-ended structure."

Alternatives have become more popular because income is in such demand, and bonds have been unpopular having reached the end of the bond bull market, according to Ryan Lightfoot-Brown, research analyst at FundCalibre. 

He said: “The pros are that many are inflation-linked, they offer diversification and they give investors access to parts of the market they would otherwise not be able to invest in – like wind and solar energy, and student accommodation, for example. 

“They also tend to benefit from very specialist management.”

He added: “The cons are that some fail to launch as there is only so much demand, there is some regulatory risk and, as bond yields start to rise, they may become less attractive over time. When there is high demand it is also important to note that prices can become very over-inflated.”

When considering what IPOs mean for investors and how advisers should approach them, Mr Lightfoot-Brown said they need to do a bit of research. 

He asked: “Do you know the manager and their process? Are they able to demonstrate how they would use the gearing? Is the trust a logical one for that manager and company? Is the board independent? 

“Depending on the trust you would want to know if the trust will be fully (or nearly fully) invested at launch, or whether monies will need to be invested over a period of time (if investing in real assets, for example) and, if there is a yield on offer, if there will be a time delay on when it will actually be paid.”