by Nick Britton
Nick Britton
This time last month, I was frantically rewriting my Foreword after hearing that Woodford Equity Income had been suspended. No such last-minute panic this time round. If you listen very carefully, you can hear the industry zipping up its suitcase for a long-awaited summer holiday.
Nevertheless, the debate about whether open-ended funds should be holding illiquid assets at all – and if so how much – has not gone away. Mark Carney fanned the flames when he said that open-ended funds holding illiquid assets are ‘built on a lie’. Meanwhile, the Investment Association (IA) has proposed the creation of ‘long-term asset funds’ with limited redemption opportunities – a puzzling half-way house which would appear to dispense with the benefits of the open-ended structure (ready redemption at NAV) while forgoing the advantage of the closed-ended (permanent capital).
If people want access to illiquid assets, closed-ended funds are an existing, proven option, and it has been extraordinary to see the perverse lengths to which parts of the industry (and regulators) will go to avoid recognising this. They seem intent on reinventing the wheel, starting with a square and then shaving off the corners. Perhaps they will end up changing the open-ended structure so much that long-term asset funds will end up becoming closed-ended and join the AIC.
Fortunately, while this rather abstruse conversation about new fund structures is taking place, investors are getting on with their lives. DFMs are switching to closed-ended funds for property, with over half the bricks-and-mortar exposure in their model portfolios now being through closed-ended funds. Meanwhile, open-ended property funds in the IA’s UK Direct Property sector have seen net outflows for each of the past eight months.
Further evidence that investors want their illiquid assets in a closed-ended format comes from the fundraising figures for the first six months of 2019. Four out of five IPOs in the period were for illiquid asset classes, raising £729 million, while £2.9 billion was raised by existing companies investing in illiquid assets (predominantly property, infrastructure, private equity and debt). That latter figure drove a record total £4 billion fundraising for H1 2019 – the highest level of secondary fundraising by investment companies in any six-month period since records began.
To highlight the role that alternative assets can play in portfolios, our training season this autumn begins with two seminars (in Birmingham and London) focusing exclusively on property, private equity, infrastructure and debt. Portfolio managers from each sector will explain the opportunities and the risks, and make a case for their asset class being part of the mainstream.
Picking up the alternatives theme, Spotlight has canvassed the views of infrastructure managers, who explain their different investment strategies and talk about the positive social and economic benefits of what they do, as well as addressing concerns around political risk. And rounding off the newsletter this month is our updated ranking of the longest-serving investment company managers, led by the redoubtable Peter Spiller of Capital Gearing, who offers reflections on his staggering 37-year tenure. I’m starting to wonder if I’m going to retire before Peter does…
Nick Britton, Head of Intermediary Communications, AIC
18 September AIC Alternatives Seminar (Birmingham) Get to know four alternative asset classes – property, private equity, infrastructure and debt. An AIC event held at the Forest of Arden Marriott. 2.25 hours of CPD. Full details.
18 September Investment trusts explored: where next for active managers? (Edinburgh) This event at Edinburgh’s Bonham Hotel is run by Sub35, a network of wealth and investment managers up to and around the age of 35 (so Nick qualifies... sort of). Speakers include Praveen Kumar, manager of Baillie Gifford Shin Nippon. 1.5 hours of CPD. Join Sub35 for free and register for the event here.
10 October AIC Alternatives Seminar (London) Get to know four alternative asset classes – property, private equity, infrastructure and debt. An AIC event held at the ICAEW, One Moorgate Lane. 2.25 hours of CPD. Full details.