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AIC revamps sectors to navigate investors through debt and property trusts

9 May 2019

The Association of Investment Companies (AIC) has overhauled its sectors in response to the dramatic growth in stock market-listed funds investing in ‘alternative’ assets.

The Association of Investment Companies (AIC) has overhauled its sectors in response to the dramatic growth in stock market-listed funds investing in ‘alternative’ assets.

Following a year-long review, the trade body has added three new sectors and renamed 15 to make it easier for investors to research investment companies and be confident they are comparing similar funds.

The changes reflect a surge in investment companies investing outside conventional equities and bonds in debt, infrastructure, specialist property and private equity. In the past five years assets in these areas have nearly doubled from £39.5 billion to £75.9 billion.

Debt is a focal point of the revamp with the AIC Sector Specialist: Debt category replaced by three new sectors: Debt – Direct Lending; Debt – Loans & Bonds; and Debt – Structured Finance.

Similarly in property, companies in the AIC's two Property Direct – UK and Property Specialist sectors have been reclassified into four segments: UK Commercial, UK Healthcare, UK Residential, and Property – Debt to reflect the diversity in listed real estate funds.

The AIC will update the sectors on its website on 28 May. It will include descriptions of each sector so that investors understand their scope. Thirty-one sectors will remain unchanged. 

‘We undertook this review to ensure that investment company sectors accurately reflect the shape of the industry today,’ said AIC chief executive Ian Sayers. ‘Recent years have seen significant growth in investment companies investing in alternative assets, such as property, debt and infrastructure and the emergence of new asset classes such as leasing and royalties.’

‘Our new sectors allow investors to find and compare companies with similar characteristics easily. I’m confident the new sectors will play a useful role in helping inform investors’ decisions.’

Mark Thomas, an analyst from investment research firm Hardman & Co, who earlier this year wrote a report calling for a breakdown of the debt sector specifically, welcomed the changes.

He said closed-end debt funds needed to be considered as lenders first and investment companies second to account for the varying economic risks they faced.

‘So in the case of loans, for a specialist lender in a niche, like BioPharma Credit (BPCR ) which lends companies in biosciences, probably very little would happen to it in a recession,’ he explained. ‘So it has pretty much no sensitivity to the economic cycle.’

‘On other hand you have peer-to-peer trusts – if the economy worsened, credit losses would rise dramatically. And somewhere in the middle you have property lenders which also have some security.’

Thomas’s paper concluded there should be six categories - specialist lenders, secured lenders, collateralised loan obligation (CLO) vehicles, peer-to-peer/platform lenders, mixed asset and leasing companies – but he believed the AIC’s changes were a step in the right direction. 

 

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