Cherry Reynard, Portfolio Adviser, 23 JULY 2024:
It has been the busiest year on record for investment trust corporate activity, culminating in the creation of the giant Alliance-Witan at the end of June. Much of the merger activity has been concentrated in ‘distressed’ sectors, such as property and China, but the merger of these two giants seems to suggest a new direction. Is it a one-off? Or the start of broader consolidation in the industry?
Investment trust boards have been active this year. The Alliance-Witan merger was the seventh merger for the year to date – the previous record was set in 2021 with just five mergers. The merger between Henderson European Focus and Henderson Eurotrust completed at the start of July. There have also been a number of proposed and realised wind-ups, including Digital 9 Infrastructure, abrdn European Logistics, abrdn Diversified Growth and Income, Downing Strategic Micro-cap, Abrdn Property Income and Triple Point Energy Transition.
The property sector has been the most active area. The merger of Tritax Big Box REIT and UK Commercial Property REIT created a £5bn trust, Custodian Property Income has also been the subject of bid speculation, in addition to the wind downs mentioned above..
Elsewhere, the activity has been focused on unloved parts of the market. The merger between Fidelity China Special Situations and Abrdn China came after a long period of weakness for Chinese markets and high discounts for the sector. JP Morgan UK Smaller Companies merged with JPMorgan Mid Cap in February, with this part of the market firmly out of fashion.
Matthew Read, senior analyst at QuotedData, says: “The market tends to go in cycles – moving between raising capital in more buoyant times, either from launching new funds or expanding those that are in vogue and trading at a premium – to consolidating the sector in leaner times when there is naturally more pressure for funds to do so. Consolidation can take various forms – be it a greater emphasis on buybacks, tender offers, winding up less well-performing funds and returning cash to shareholders, or merging funds to achieve greater efficiencies and improved liquidity.
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