Investment trust fundraising shifts a gear

The return of investor confidence has hit the investment company universe through a flood of new and diverse efforts to raise funds, continuing strong performance, and proposed mergers such as that between UK Commercial Property and F&C Commercial Property, currently being considered. 

In addition, HG Capital has become the first investment trust to use the tax framework to "stream" income from interest bearing assets. Three new launches have taken place so far this year - Anthony Bolton's much anticipated listed investment company, Fidelity China Special Situations which raised £460m and JPMorgan Brazil Investment Trust launched this week raising £47m. 

The third is Baker Steel's Resource Trust which offers investors exposure to pre-IPO mining and specialist resources stocks and has raised £30.5m in addition to the £35.5m which has been rolled into this new fund. The new investment companies fundraising include a diverse variety of investment objectives.

There are plans to launch a £100m global healthcare company, Polar Capital Global Healthcare Growth and Income Trust, and plans to launch Aberforth Geared Income Trust, a split capital investment trust investing in UK smaller companies which again aims to raise £100m.

The other two new launches both plan to invest in distressed debt. NB Distressed Debt plans to raise about $150 million through a float on London's Specialist Fund Market, to take advantage of opportunities to profit from troubled companies' debt trading at a discount.

Whereas HarbourVest Senior Loans Europe plans to invest in the senior secured loan market and will invest in secondary and primary European senior secured loans of 20 to 30 European private equity-backed mid-market companies with an enterprise value of up to about $1.4bn.

With the bull market continuing, investment companies have continued to perform very strongly.

The average investment company is up 45 per cent over the last year and has performed strongly during 2010. According to Winterflood, the investment company sector has outperformed the FTSE All Share in three out of the last four months.

In March the FTSE All Share was up 6.8 per cent whereas the investment company sector was up 7.4 per cent.

In addition, the proposed merger between UK Commercial Property and F&C Commercial Property is under consideration and, if this merger were to go ahead, it would create a £1.6bn property investment company.

The Board of F&C Commercial Property Trust has received a proposal from Ignis Investment Services, the investment manager of UK Commercial Property Trust, to liquidate F&C Commercial Property and merge with UK Commercial Property. The proposal also includes the option of a cash exit for shareholders in F&C Commercial Property Trust. The Board of FCPT has stated that it is "carefully considering this proposal" and we await the outcome.

Interestingly, HG Capital Trust, the first investment trust to use the new tax framework, to "stream" income, has reported its results. HM Revenue & Customs introduced the new tax framework, which allows investment trust companies to invest tax-efficiently in bonds and other interest producing assets, on September 1 2009.

HgCapital Trust has "streamed" income from interest bearing investments which has led to an increase in Net Asset Value (NAV) of 7.9p per share at 31 December 2009, the payment of a higher dividend and a saving of just under £2m in corporation tax.

Ian Sayers, Director General of the Association of Investment Companies said: "We are delighted to see the first investment company take advantage of this new tax framework which opens up new possibilities for the investment company industry.

Investment trusts are now able to invest tax-efficiently in different investments allowing the industry to compete more effectively with alternative structures."

The recent strong performance in the investment company sector and the surge of new issues clearly reflects an increase in investor confidence.

Annabel Brodie Smith is communications director at the Association of Investment Companies. The views expressed are her own.