There are too many small, illiquid investment companies within the closed-ended sector which will struggle to win a place on wealth manager buy lists post-RDR, argues Standard Life Investments.
Gordon Humphries, the firm’s head of investment trusts, said the sector should be placing greater emphasis on consolidation to persuade wealth managers and platforms to back investment companies.
“The wealth management industry is increasingly growing in size, and the bigger a wealth manager becomes, the more sensitive it will be to size and liquidity when it comes to putting investment companies on buy lists,” said Humphries.
“Investment companies with assets at around the £50m mark are really going to struggle as ultimately they are too illiquid to trade, so wealth managers will not recommend them.
“Once a buy list has been set, it is really difficult to get a seat, so I think greater consolidation should be encouraged within the sector.”
His comments were echoed by Winterflood’s investment trust analyst Simon Elliott, who argued trusts below £100m will suffer once RDR comes into force in January 2013.
“Investment companies below £100m will find it tough to get on wealth manager buy lists, as there is not enough liquidity in the secondary market,” he said.
Haig Bathgate, chief investment office at wealth manager Turcan Connell, agreed liquidity is an ongoing issue for closed-ended funds, and will become more important with the advent of RDR.
“If we recommend one investment trust for one client then we should be able to recommend the same trust for every client to treat everyone fairly, but some are just not liquid enough for this to happen,” said Bathgate.
“This will only get worse as more and more consistency is being demanded by private clients as they allocate their funds.
“As we do not want to disturb the client base we only invest in small investment trusts on a tactical basis, they would never form a core part of a model portfolio.”
Putting the tech into protection
Square Mile’s series of informal interviews
Fallout from Haywood suspension
Launching later in 2019
£80bn funds under calculation