launch put off after FSA hints at restrictions on the amount trusts can invest in other trusts
imia is to defer the launch of its investment trust of investment trusts after the FSA flagged possible restrictions on multi-manager investing by closed-end funds.
Iimia head of investment trusts Nick Greenwood said he would instead bring forward the launch of a fund of investment trusts with an Oeic structure, originally planned to follow the investment trust into the market.
Provisions contained in the FSA's consultation paper 164 were part of the regulator's response to the collapse of a number of split-capital trusts, whose cross-holdings in other highly-geared splits led to a series of failures once the bear market took hold.
Greenwood said the launch would be deferred at least until the FSA finishes the consultation period on CP164.
'In its current draft form I couldn't even invest the trust in the Foreign & Colonial investment trust because you're not allowed to invest in a trust that has the power to invest in other investment trusts,' he said.
'I suspect once the consultation period comes to an end, the most likely compromise will be that investment trusts will be limited to investing 10% in trusts that have more than 20% invested in other trusts, and that won't be a problem.'
He added such provisions would not substantially reduce his investable universe, as there are only around six investment trusts that invest wholly in other investment trusts in which he would invest, out of more than 600 stocks.
'It's very unlikely that I would want to have more than 10% in those six stocks and even if I did it would be marginal,' he said. Greenwood believes the threat of regulatory restrictions could reduce the attraction of the trust for institutional investors, several of which were already lined up to support the launch.
'We had cornerstone investors in place and part of the uncertainty was that a couple of the institutions wanted to put it in an investment trust,' he said.
'They were mainly UK general mandates rather than funds of funds, so they probably wouldn't have any other investment trusts within their portfolios.' The trust, which will aim for capital growth, is to be capped at around £40m and aims to have a portfolio of around 20 stocks, with a maximum 10% exposure to any single stock.
Greenwood said it was uncertain when the closed-ended fund could be launched, but he was pushing ahead with an open-ended fund of investment trusts, which he expected to be launched in late April.
The open-ended fund will be more diversified than the closed-end fund, in order to maintain liquidity so that redemptions can be met at short notice.
'The closed-end version will be much more punchy because the investment trust sector is relatively illiquid,' Greenwood said.
'There are a lot of investors in the market whose set-up is much more geared to using open-ended funds rather than closed-ended funds. Another problem with closed-ended funds is that you have to raise the money all at one time, so it will probably be more institutional while the open-ended fund will be more for the IFA market.'
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