Liontrust’s decision to pull its ESGT investment trust following a lack of demand does not bode well for further launches in the closed-ended universe, according to market commentators.
Back in May, Liontrust announced plans to launch its first investment trust, starting with an ESG offering called ESGT. It was due to be run by the sustainable investment team, headed by Peter Michaelis with Simon Clements, two managers with a long experience running open-ended sustainable strategies for the fund group.
But this did not come to fruition, with Liontrust announcing it would not be proceeding with the IPO after it failed to reach the minimum £100m target.
Liontrust chief executive John Ions said that more than 2,000 individual private investors had “demonstrated their confidence in the investment proposition”, before adding: “We are disappointed we won’t get the chance to repay their faith through an investment trust after everyone worked so hard to secure its launch.”
Michaelis said he and his team would take the ideas they had developed for ESGT and continue to apply them to their open-ended funds, where there is strong demand.
Darius McDermott, managing director of FundCalibre, said he was surprised that Liontrust failed to hit its £100m target.
“Interest in the IPO was high from retail investors, but to get a trust away, you often need some cornerstone investors of reasonable size. So I was disappointed they didn't quite get the trust away.”
He added that in the IPO market generally, there has been a strong wave of investment trusts launching this year, including Cordiant Digital Infrastructure, Digital 9 Infrastructure and Taylor Maritime.
“Also, there is a continuous call on capital in the IT markets as established trusts raise money. This is done pretty much throughout the year.”
“We have subscribed to a good number of these and continue to do so in our own funds, but you can’t buy them all,” McDermott added.
Although he highlighted some recent successes, he said ESGT’s failure posed a bigger question about whether this was due to difficulties involved with launching new investment trusts, or a decline in popularity of ESG and sustainable strategies after they saw significant momentum in the past 18 months.
Laith Khalaf, financial analyst at AJ Bell, believes it is more a case of the former.
“Liontrust ESGT was an attractive proposition, run by an established and successful team, at a time when markets are buoyant, and in an area of investment where there’s currently a lot of demand,” he said. “Frankly, if this trust can’t gather enough speed for lift-off, it doesn’t bode well for future investment trust launches.”
He added: “The failure of this launch will naturally lead to questions about whether demand for ESG products is petering out. But so far, industry figures don’t support that hypothesis.”
The latest Investment Association (IA) data shows inflows into responsible funds hit £1.3bn in May, up from £900m in May 2020, which was itself a record for these funds at the time.
“It’s possible that after six months of rising markets, investors are as fully invested as they want to be, and don’t wish to allocate any more money to equities after such a strong run,” Khalaf continued.
“But there is probably a greater structural issue around investment trust launches which can undermine demand and may also help to explain the trusts that failed to IPO last year too.”
The analyst also pointed out that of the several ESG-focused investment trusts already available, many are currently trading at a discount.
“Investors may therefore be waiting in the wings for investment trusts to launch on the market, and potentially move to a discount, before buying in at a lower price,” he added.
“This issue is compounded by the fact that the costs of setting up investment trusts, normally in the region of 2 per cent, are generally paid as part of the IPO, giving investors another reason to wait it out. Of course, it’s possible that an investment trust moves to a premium when it launches on the market, which would mean IPO investors get a head start on the rest of the pack.
“However, it seems such confidence is simply too great a leap of faith for investors at the moment.”
The trend of struggling investment trust launches was recently highlighted by Ben Yearsley, Fairview Consulting director.
“I think it says more about the structure and difficulties of launching a new investment trust than about the popularity or not of ESG investments,” he said.
“If you look at the last few years, the only trusts to have property launched and raised good money have been income-focused infrastructure ones. Virtually everything else has either been pulled (Tellworth) or raised a small amount (Schroder British Opportunities, for example).
“I think fund groups have been seduced into launching more mainstream offers without thinking through how hard it actually is to get substantial funds.”
Looking ahead, Yearsley expects infrastructure and income-focused trusts to continue launching “in even more esoteric fashion”, while more traditionally invested ones will struggle.
“One final word. The trust world has been left in the shade by open-ended funds in the ESG stakes: there are many good open-ended ESG options. Maybe trusts are trying to fill a hole already full,” Yearsley concluded.