Alternative assets drive investment trust growth

Data from the Association of Investment Companies (AIC) out today (August 12) showed UK listed investment trusts now have assets of £209bn, doubling in the six years since 2013.

Much of that increase has come from the rapid growth in alternative assets investment trusts, in areas such as student property, medical centres and aircraft leasing.

The assets in this sector have more than doubled from £34.7bn to £80.3bn in six years. 

Peter Elston, chief investment officer at Seneca and an investor in alternative trusts, said there were two reasons for the growth.

"The first is that low bond yields mean many of these trusts act as bond proxies, with the income used by investors to replace the income they can no longer get from bonds.

"The second reason is that many of these areas, such as aircraft leasing, were areas where the banks provided the financing, and individual investors could not get access. But since the financial crisis banks have moved away from those sectors, and investment trusts have replaced them.” 

Ian Sayers, chief executive of the AIC said: “As investment companies are the natural home for illiquid assets, it is not surprising that a significant part of this growth has been in the alternative sectors, which are often invested in assets that are harder to sell such as property and infrastructure.”

David Scott, an adviser at Andrews Gwynne in Leeds, said the impact of the Retail Distribution Review, which banned advisers from receiving trail commission had boosted demand from advisers for investment trusts.

This was because investment trust providers have never been able to pay trail commission, so were less popular with advisers beforehand. 

Mr Scott added: “Coming from a stockbroking background I have always used trusts, at the moment I use them quite a lot for alternative assets, as they are not listed, and so the investment trust structure is ideal for holding those assets.” 

david.thorpe@ft.com