Less than half capital released during restructuring since March 2000 has stayed in sector
Investment trusts have retained less than half of investors' funds released during rollovers and restructures over the past two and a half years.
Figures compiled by investment trust director and consultant Hamish Buchan show of the £3.56bn of shareholders' money involved in rollovers and restructures since March 2000, some £1.88bn, 52.7%, has been taken out of the investment trust sector altogether.
Market watchers say the figures are partly symptomatic of the meltdown in the split-cap sector, where high gearing levels and general market weakness have made investors keen to get their hands back on whatever is left of their cash.
They also reflect the continuing exodus of institutions from the sector as they acquire their own asset management capabilities and no longer require the services of external managers.
Even those that have yet to begin running their own money have been more likely to take cash due to a need for liquidity.
'There will always be people who have a need for cash,' said Invesco Institutional deputy chief executive Graeme Proudfoot. 'Among those that invest in the sector are insurance companies, who have had considerable cash calls in the past 12-18 months.'
The lack of gains being made anywhere in the market has also reduced the incentive for retail investors to roll over their holdings to avoid capital gains tax, making it more difficult to retain the funds of investors facing losses elsewhere in their portfolios.
'People are perhaps more inclined to take cash now than they were three or four years ago because of the capital gains tax constraints in a bull market which led them to roll over their original book cost into the successive vehicle and avoid paying CGT,' said Dresdner head of investment trusts Simon White. 'Now people have fewer gains and more losses, the sense they are locked in by capital gains is much less.'
Proudfoot said the realisation costs for investors are generally lower when cash is taken at wind-up rather than through selling shares at a discount on the open market.
'In the context of a reconstruction, you're getting cash at a relatively modest discount to net asset value. That's attractive compared to something at a wider discount in the market,' he said.
'Then there are fund of funds-type investors who are in need of cash because of what has happened to the rest of their portfolio. Some are happy to run a position but if they are offered a cash exit, they know their bank would be happier if they took it.'
Jupiter head of investment trusts Andrew Watkins said it is crucial for managers to begin discussing rollover options with key investors well before trusts mature or come up to continuation votes if they hope to minimise leakage.
'Quite a lot of work needs to be done with your institutional shareholders to make sure you do roll over into something that is suitable for the market conditions and what your investors want,' he said.
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