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A summary of 2012 for Investment Trusts

Courtesy of the AIC…

Whilst the environment for fundraising remains challenging, 2012 has been a better year than last year.  Taking both new issues and secondary issues into account, some £3.2bn has been raised over the year, according to data using Winterflood Securities, compared to £2.5bn the previous year.

Launch activity over the year to date is also up on 2011.  There have been seven new investment company launches so far this year (compared to six in 2011), with further launches anticipated.  So far this year, some £847m has been raised through new issues, compared to the £691m raised last year.

The largest investment company launch was Starwood European Real Estate Finance, launched in December raising £228m, followed by the Battle Against Cancer Investment Trust, which launched in October raising £207m.

New issues 2012

Month Company Sector Launch Assets (£m) Dom
Mar Alcentra European Floating Rate Income

Sector Specialist: Debt

81

Gue
Mar BlueCrest BlueTrend

Hedge Funds

165

Gue
Jun DCG IRIS

Sector Specialist: Insurance & Reinsurance Strategies

40

Gue
Oct BlackRock North American Income

North America

65

UK
Oct Battle Against Cancer Investment Trust (BACIT)

Global Growth

207

Gue
Dec Blue Capital Global Reinsurance

Sector Specialist: Insurance & Reinsurance Strategies

61

BER
Dec Starwood European Real Estate Finance

Sector Specialist: Debt

£228

Gue

Money leaving the sector

According to Winterflood Securities, some £912.6m left the sector through share buy backs and £987.7m left the sector through tender offers over the year to 30 November.

Income a strong theme

Income continues to dominate much of the secondary market issuance activity, with the Sector Specialist: Infrastructure sector continuing to account for much of this.  Around a quarter of shares issued in the secondary market so far this year have come from the infrastructure sector.  HICL Infrastructure raised a total of £318.4m, with £250m of this through a C share issue. 

GCP Infrastructure raised £155.7m, with 144.4m through a C share issue, whilst International Public Partnerships raised £200m through secondary issuance. John Laing Infrastructure raised £121.3m on the secondary market. 

In the wider investment company arena, C share issues continued to have a strong income theme.  For example, Aberdeen Asian Income raised £60m, Diverse Income Trust raised £30m in July and a further £31m in December.  Aberdeen Latin American Income raised £15.6m.  Away from the dominance of income, in the Private Equity investment company sector, Better Capital 2012 raised a significant £169.9m.

Data from Winterflood Securities looking at regular secondary issuance also suggests that companies able to issue new shares tended to have an income focus, with the exception of Personal Assets Trust in the Global Growth sector, which raised £121.2m.  This was followed by Murray International (Global Growth & Income), which raised £96.1m, City of London (UK Growth & Income), which raised £44.1m and in the same sector, Finsbury Growth & Income which raised £41.5m, all through regular secondary issuance.

Interestingly, the split capital investment company sector raised £100m, with a number of new zero dividend preference share classes being launched.

Impact of New Tax Rules

The new investment trust tax rules came into effect in April, giving companies flexibility to pay dividends from capital.  It seems that companies are increasingly obtaining shareholder permission to do this, although few have actually used this facility in practice so far. According to JP Morgan Cazenove, some 26 companies have to date sought shareholder approval to pay dividends from capital.

Sector changes also reflect popularity of income mandates

Continuing the income theme, BlackRock Income & Growth moved from the UK Growth to the UK Growth & Income sector in April, having appointed BlackRock as investment manager.  JPMorgan Claverhouse moved to the UK Growth & Income sector in May (also from UK Growth).

Innovation in the sector

In July, BlackRock World Mining announced that that it has entered into an agreement with London Mining Plc whereby the Company will acquire for a consideration of $110m, payable in cash on completion, a 2% revenue related royalty calculated from any iron ore sales over the life of the mine from London Mining’s Marampa licence ML09/02 in Sierra Leone.  JPMorgan Cazenove wrote that: “In our view this is a ground-breaking transaction. It is an example of using the full flexibility of the investment trust structure to diversify its source of revenue by in effect providing long term funding to the mine by taking advantage of its low cost of finance.”

Annabel Brodie-Smith, Communications Director, Association of Investment Companies (AIC) said: “Clearly investment companies with an income focus continue to be in vogue, and this is reflected in both valuations and issuance activity.  So it is not surprising to see that once again, with interest rates remaining at record lows, much of the activity in the investment company sector this year is related to income.  It will be interesting to see how this informs activity next year.”

My next blog will be on IFA fees since RDR is turning the IFA charging structure upsidedown for 2013 and onwards.

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