It is not often that the launch of a new fund or product warrants editorial comment in itself but in...
It is not often that the launch of a new fund or product warrants editorial comment in itself but in our minds this week's announcement by Standard Life of an investment trust to invest in private equity funds is a truly important innovation.
Since the debacle of technology funds last year, which promised a new dawn in investment returns and provided only false hopes, the market has cried out for something significant to fill the void.
Private equity, and not hedge funds, is this void in our view and access to private equity funds through investment trusts could be the new alternative for the retail market.
Private equity has a different risk perspective from hedge funds. It does not invest is risky technology start-ups, it generally focuses on established businesses in need of fresh capital to turn things around. The flotation of bookmakers William Hill by private equity specialists Nomura is a good example.
Interestingly it is Standard Life Investments that is leading this movement forward through the launch of its first investment trust. It is practically unheard of for a life office to launch an investment trust, let alone to be one of the very few groups in the UK to launch a closed ended fund which invests in private equity funds. The launch of the trust is also another innovation for the investment trust industry, which has been fairly creative as of late, what with the recent spate of fund of hedge fund offerings.
Many product providers have been looking to follow Deutsche's lead earlier this year in making hedge funds accessible to Isa investors. While much of the unit trust and Oeic industry has focused on launching theme and sector funds, the investment trust industry has been looking at ways to widen the scope of investment vehicles available. Hedge funds have proven relatively popular with intermediaries, if not with the FSA. Most of the major investment houses have been looking at the IT of hedge funds as a sellable product at a time of high stockmarket volatility as it offers exposure to a product that is not correlated to the market.
Private equity funds are also appealing in a similar vein. While historically the IT industry has not been popular with advisers, perhaps the increase in product innovation in this area will attract more attention as intermediaries strive to provide their clients with a wider choice of investment vehicles.
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