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Trust sector urged to grow in order to ‘stay relevant’

Biotech trusts top performance charts in February

From evolution to revolution: Investment trust sector urged to grow in order to ‘stay relevant’

David Brenchley, 14 January 2021, Investment Week

Brokers have long called for a shake-up of the investment company sector, with Numis analyst Ewan Lovett-Turner lamenting in July there were too many sub-scale companies trading on wide discounts and called on them to wind up or merge with existing companies.

“The consolidation of wealth managers, the Woodford scandal and MiFID II have increased the focus on liquidity and costs, meaning that a large portion of the investment company universe is not investible to many of the core buyers,” Lovett-Turner explained…

How did they get here?

As wealth managers’ assets under management grow, the minimum size of fund in which they can invest that cash does, too…

Smaller activity

Some smaller merger activity has taken place over the past few years, most recently the rollover of Invesco Perpetual Growth into the Invesco Perpetual Select Trust’s UK Equity portfolio. However, the combined trust will still have a market capitalisation of less than £200m…

Tenders and redemption facilities

However, while mergers are an obvious way of doing this, they do involve boards voting to lose their jobs, so tend to be rare. Mackie outlined a number of alternatives that might be easier to achieve…

Zero discount models

…One “move in the right direction” for the sector for Walls would be companies offering more shares at IPO to a wider audience, for instance targeting private investors rather than just institutional and wealth managers.

James Carthew, head of investment company research at QuotedData, agreed, noting that trusts should not become “fixated by the needs of one group of investors”.

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