MPs have pushed the government to “level the playing field” between investment trusts and open-ended funds in order to increase investment into infrastructure, renewable energy and housing.
Speaking at a Treasury committee meeting this week (January 10), MP John Baron said the government is trying to encourage more investment in a number of areas, but retail investors are being “put off” by the issues in open-ended funds that hold illiquid assets.
“Can we level the playing field between investment trusts and unit trusts [open-ended funds],” he asked Andrew Griffith, economic secretary to the Treasury.
Baron said investors are being put off by the withdrawal issues seen in open-ended property funds.
Retail investors have been pulling money from these vehicles since a number were gated to stop a slew of withdrawals after the Brexit vote in 2016.
Some £32bn was invested in property funds in 2015, 3 per cent of the total in UK funds, which dropped to £22bn (1.4 per cent) in November last year, according to the Investment Association.
The problem faced is the mismatch between the daily trading of open-ended property funds, and the illiquid nature of property, which cannot be sold quickly in the case of high redemption requests.
The FCA opened a consultation into the future of open-ended property funds, however in May 2021 said it would not confirm specific property fund rules until a consultation on the long-term asset fund had been completed.
This was concluded in October 2021, and the regulator has not outlined any further details to date.
The FCA introduced an open-ended investment fund in late 2021, designed to allow sophisticated investors and DC pension schemes to invest in illiquid or long-term assets, however no funds have yet been launched.
“Open-ended funds are not good for long-term investments as we’ve seen with nobody taking up the LTAF incentive," Baron said.
He highlighted the "greater track record" by investment trusts in terms of investment in infrastructure, renewable energy and housing, but criticised the stamp duty tax levied on those who buy shares in a trust.
The industry body for investment trusts, the Association of Investment Companies, has previously called on the Treasury to remove stamp duty from the purchase of investment trusts and VCTs.
It said that as these vehicles already pay stamp duty or stamp duty land tax when they purchase the underlying investments, levying the charge on investors when they buy shares in the trusts leads to a double taxation.
“There is no policy rationale for this difference as investment companies and open-ended funds serve the same investor need,” the AIC said.
Griffith said Baron was “not the first” to make the point that there is potential for investment trusts as a vehicle for this investment.
“One always aspires to a level playing field, I am learning rapidly that these things are never quite as simple as we seek but I understand the point,” he said.