by Nick Britton
Nick Britton
Trump has been trumped. He was supposed to be the big news this week, but in the investment industry, the suspension of LF Woodford Equity Income is all anyone’s talking about.
Having 10% of a UCITS fund in illiquid assets doesn’t sound like a lot, but the events of this week show that it can have a big impact when investors want their money back. I can’t believe I’m saying this again – surely everyone gets it by now? – but the closed-ended structure is much the better option for anything that can be remotely illiquid – unquoted companies, properties, even smaller quoted companies.
We’ve seen it all before with open-ended property funds. These lumbering beasts, for all their enormous cash buffers, are just not up to the job of providing exposure to an illiquid asset class like property. The cash depresses their performance and, in adverse conditions, still proves inadequate to maintain daily liquidity.
The regulator’s response so far has been to call for more frequent suspensions (whenever there is material uncertainty over the value of illiquid assets in the fund), more disclosure (hurray!) and the publication of contingency plans. Sticking plasters that do nothing to address the fundamental liquidity mismatch between bricks and mortar, on the one hand, and the promise of daily redemption, on the other. We’ll have more to say on this in next month’s Spotlight.
Back to Trump. Apparently, the US president had a long chat with Prince Charles this week. From what we can glean, the main topic of conversation seems to have been the environment. So, might His Royal Highness have succeeded where meteorologists have failed, and persuaded the president that there is something more to climate change than just a few random heatwaves?
Well, the jury’s still out. Afterwards, Trump said he was “moved” but didn’t appear to have entirely abandoned his scepticism: “I believe that there’s a change in weather and I believe it changes both ways.”
The fact is that the last four years (2015, 2016, 2017 and 2018) have been the hottest ever recorded, according to the World Meteorological Organization. The impact on people and the natural environment is already being felt.
For any fund manager who is truly long-term in their outlook, factoring in these trends is a must, as Mark Whitehead of Securities Trust of Scotland explains: “Whether we like it or not, every investment decision we now make needs to account for the effects of climate-related change.” This month in Spotlight, we hear from Mark and other managers, including F&C’s Paul Niven, about how they engage with investee companies on the environment.
There are also investment companies whose whole purpose is to invest in climate-related technologies or projects. Jon Forster, co-manager of Impax Environmental Markets, explains how he is capturing opportunities in companies which help us either mitigate climate change, or adapt to it; while several managers from the Renewable Energy Infrastructure sector reveal where they see the opportunities, in areas from wind and solar farms to energy storage.
It has been good to see many of you on our workshop tour, which is now almost exactly halfway through. There are still places left in Newmarket, Stamford, Crawley, Edinburgh and Glasgow and you can book here. Details will be released soon of our autumn seminars, some of which will focus on investment companies offering exposure to alternative (and often illiquid) assets.
Nick Britton, Head of Intermediary Communications, AIC
Please click on the links to book your place.
21 May-20 June Investment trust workshops (14 locations) Providing a comprehensive introduction to investment trusts in a friendly and practical way, the AIC’s workshops have been very highly rated by previous attendees. We are halfway through the UK tour now and we still have places left in Newmarket, Stamford, Crawley, Edinburgh and Glasgow. See a full list of locations and dates.