By Annabel Brodie-Smith
Well, we certainly had a beautiful Indian summer but the season of “mists and mellow fruitfulness” has now arrived. After returning to work, I’m suffering from a full-on autumn cold brought home from school by the boys. I have been out blackberrying and have made my first crumble of the year - blackberry and apple – another clear sign that autumn is upon us.
Fundraising in the investment company industry from our existing companies is already at record levels this year, totalling £8.71bn so far. Demand for alternative assets has been very strong, with the Renewable Energy Infrastructure sector raising £1.69 billion to invest in the likes of wind farms, solar energy and battery storage. This is not surprising considering the government’s desire for a net zero carbon economy and the UN Climate Change Conference (COP26) just around the corner. Other popular sectors this year include Infrastructure (raising £988 million), Growth Capital, which invests in private companies (£803 million) and Property – Europe (£556 million).
This issue of Compass is exploring some of the sectors focusing on alternative assets, an area where the government is currently trying to encourage institutions and pension funds to invest. Prime minister Boris Johnston and chancellor Rishi Sunak have urged them to support an ‘investment big bang’ and to invest in assets like infrastructure and young companies, to revitalise the economy post-Covid.
The closed-ended investment company structure is particularly suitable for hard-to-sell alternative assets. This is because investment company managers can take a long-term view of their portfolio and do not have to manage inflows and outflows of cash like open-ended managers. This means investment companies haven’t experienced suspensions as open-ended property funds have. Investment company investors can easily buy and sell their shares on the stock market.
So, this month Ian Cowie takes a long hard look at the property sectors and weighs up whether it’s a buying opportunity. The negative trends are well-known, such as working from home and online shopping, but “reports of the death of both commercial property sub-sectors could prove greatly exaggerated”. Many property investment companies’ share prices have shot up over the last year, with the Property – UK Commercial sector up 33% and an average yield of 4.9% but has the recovery got further to go?
And now for something completely different. Say you hear a song on the radio, perhaps Fleetwood’s Mac’s ‘Don’t Stop’ or ‘Little Lies’, would you like to invest in the investment company which is earning a revenue from it?
What is your strategy and what does it offer to investors?
There are two investment companies which invest in music royalty rights in the AIC’s Royalties sector: Hipgnosis Songs Fund, which owns those two Fleetwood Mac songs, and Round Hill Music Royalty. The investment company earns revenue when a song is played on the radio, TV, live in a concert or when it’s streamed via a platform like Spotify or used on a TV advert. It’s clearly a specialist area but find out more in Hannah Smith’s article.
Finally, I recently talked to managers from the Debt – Direct Lending sector. This sector is known for its high yield of 7% and is up 16% over the last year and 43% over five years. Interestingly, many of the loans these companies invest in have a sustainable theme and this includes clean energy, affordable housing and energy efficient homes. Do read the release and watch the video of Matthew Potter of Honeycomb, Joanne Fisk of GCP Asset Backed Income Fund and Thomas Le Grix De La Salle of RM Infrastructure Income on their strategies and what they offer to investors.
Wishing you all a good October. It’s my birthday month so I need to get better quickly so I can celebrate!
Annabel Brodie-Smith Communications Director, AIC
