The investment trust sector is on track for another good capital raising year, according to analysts...
The investment trust sector is on track for another good capital raising year, according to analysts at Deutsche Bank.
By the end of the second quarter this year, the industry had already accrued £2.7bn of new money, compared with a total of £8.7bn in 2000, a record year for the industry.
In the period up to 31 May 2001, £1.5bn was returned to investors, leaving a net inflow of £1.2bn.
A report, written by Martin Fothergill and Carolyn Coke at Deutsche Bank, attributes the solid inflow in the first half of this year to a renewed interest in alternative investments, which has most notably seen in launches of funds of hedge funds.
Both the split capital and conventional sectors have seen significant capital inflow with more than £1bn raised in split capital new issues, with £620m of equity and £399m of debt.
However, Coke believes a lot of the new capital in the split cap sector is actually coming from other split-cap providers rather than retail investors.
Over half of the new money raised overall by investment trusts, about 56%, has been through the traditional alternative investment asset classes of private equity, property and hedge funds.
Of the 16 trusts launched so far in 2001, seven have fallen into the alternative investments category.
The report anticipates the launch of further hedge fund products later in the year, on top of the four that have already been brought out.
Xavex Hedgefirst raised £53m; HSBC European Absolute Return £42m; Man Alternative Investments £32m; and Henderson Absolute Return Portfolio £110m, although Coke noted that much of this total has come from institutional clients.
A resurgence of interest in private equity is also expected. Invesco has indicated it is to launch a private equity investment trust for institutional clients as it offers similar benefits to funds of hedge funds with diversification possibilities and low correlation attributes.
The changes in the regulatory framework in relation to private equity products as outlined in the Myners report on institutional investment will, if implemented, almost certainly increase demand for this kind of product among corporate investors.
The amount of money leaving the investment trust sector has also slowed slightly. In the first six months of 2001 there was an outflow of £1.5bn, an 18% fall in the amount, month on month, over the same period in 2000.
This comprised of £668m through share repurchases, £219.4m through tender offers, £145.5m through capital repayments and £120.5m through unitisations.
The massive inflow of funds into new technology trusts last year reversed the outflow trend of the previous three years.
The years 1997 and 1998 saw a lot of restructuring, particularly among the big generalist trusts which led to large sums being paid back to investors, Coke said.
In 1999, companies were granted permission to buy-back their own shares which led to a major outflow of capital. www.ifaonline.co.uk
Develop ‘soft skills’
Governance reforms expected in May
Strategic partnership between firms
Catching up with the Influencers