Bumper year for investment companies says AIC

So far in 2010, sentiment in the asset management arena has seen a marked improvement on 2009 as the UK has crept out of recession.

However, the gloomier speculators out there are still predicting the possibility of a double-dip recession. The managers polled in the Association of Investment Companies' (AIC) annual poll of fund managers at the end of 2009 predicted that the FTSE 100 would close 2010 between 5,500 and 6,000. If things continue as they are, it looks like their predictions this year might come true on 31 December.

Nevertheless, there is never any certainty in markets, as is clearly demonstrated by the FTSE which has fluctuated from a high of 5,825 to a low of 4,805 so far this year.
 
When compared to 2009, 2010 can be seen as a bumper year for investment companies with ten new launches so far this year (excluding VCTs) in comparison to just four in 2009.

In total these new launches have raised £1.16bn, most notably Fidelity China Special Situations which raised £460m, NB Distressed Debt with £134m and JP Morgan Global Emerging Markets Income which raised £104m.

On top of this, there have also been six new VCTs launched this year, raising £95.18m. It is interesting that the ten new launches this year have come from nine different sectors with a definite focus on emerging markets and specialist sectors. Once again, the fund managers seem to have got it right as they predicted in last year's poll that the most popular area in 2010 would be emerging markets.

One of the strengths of the investment company sector is its ability to evolve over time. With the struggle to get bank financing, last year saw a rush in the issuance of zero dividend preference shares and this year, despite the sector raising £2.1bn in total so far, according to Winterflood Securities' September research, £1.4bn has been returned through buy backs and tenders.

Consolidation within the industry is important as boards strive to make sure that they are representing the best interests of shareholders and this might require returning capital to shareholders or merging two companies, for example. Boards have been proactive this year, instigating six management group changes. With independent boards of directors responsible for hiring the manager, this illustrates their role of looking after the best interests of shareholders as markets and circumstances evolve. The sector has also seen some three investment companies secure shareholder approval to adjust their investment remit in 2010.

The investment company sector has always demonstrated its ability to evolve with the market and this has helped the sector endure and flourish for the past 142 years. In the words of Darwin: "It is not the strongest of species, nor the most intelligent that survives. It is the one that is most adaptable to change."

Ian Overgage is acting communications director for the AIC. The views expressed here are his own.