Anyone looking for seismic changes in the investment trust market will have been rewarded with two huge developments in the last few weeks. The first is that Andrew Bell is retiring from his current role at Witan (WTAN ) and consequently, the board is using this as an opportunity to review Witan’s management arrangements and is inviting proposals for the future running of the £1.7bn portfolio.

The other big development has been Scottish Mortgage’s blockbuster £1bn two-year share buyback programme which was swiftly followed by news that Elliott has emerged as a top 5% shareholder. Once completed the buyback will amount to 7.8% of the net assets, which is a big number for an investment trust, even one as big as Scottish Mortgage (SMT ).

Both developments speak to the constant buzz of restructuring, resizing, and renewed focus on capital allocation sweeping the investment companies’ sector. We’ve seen myriad mergers, numerous buyback programmes and pronounced director dealings. Talking a few weeks ago to one head of secondary funds trading at an investment bank, I found myself nodding in agreement as the hugely experienced trust specialist suggested that we could end up with as few as 200 to 220 London-listed closed-end funds by the time we’re finished.

That said, we are far from being finished with that culling process – there are still far too many small funds with no viable future. Care to guess how many there are with a market value of less than £50m? At least 40 by my count. If we widen the net to £100m, there’s at least another 35 minnows leaving us with 75 sub-scale funds below £100m, a number which I see halving over the next few years.

I’ve become fond of saying that in the late noughties and early twenties, the London funds market found itself in a bubble, not necessarily of valuations – though premiums were common – but of issuance. Put bluntly, too many new funds emerged with too little due diligence. And like all bubbles, this will take at least a few years, if not longer, to work its way through the system.

This brings us back to the Scottish Mortgage and Witan situation. Both are big funds that will have no trouble surviving the cull. The Scottish Mortgage situation reflects a new willingness to take capital allocation seriously by an experienced board. Fund managers can have too much capital to deploy, and the board has quite rightly taken the view that despite the constant rhetoric of all active managers – I can never have too much capital given the opportunity set – there is a point when it makes more sense to close that discount gap which had widened out to over 20% by the spring and summer of last year. It’s now back around the 7% level.

As an aside, throughout 2020 and 201 Scottish Mortgage traded at a premium and issued lots of new shares.

As for Elliott, it is hard not to suspect that the activist hedge fund is after even more aggressive action – perhaps their end game is to get Scottish Mortgage trading at a premium to NAV again, off the back of its tech bets, while hiving off the private investments which are acting as a drag on the share price.

No one doubts that Scottish Mortgage has a bunch of great pre-IPO businesses in the portfolio such as SpaceX but might it not be simpler to either have that unquoted allocation below 10% or just pass it off entirely to the Schiehallion (MNTN ) private equity fund and keep the main trust as a pure public markets vehicle?

The Witan situation is perhaps more interesting over the long term. Andrew Bell had led a revitalisation of the fund, with particular emphasis on marketing to mainstream investors.

Witan also deserves huge credit for kickstarting a revival of interest in making annual reports and accounts more consumer-friendly and accessible, a trend which has now been picked up and improved on by many alternative funds, especially the listed private equity vehicles.

But the bitter truth is that in recent years Witan has suffered by comparison with its closest rival Alliance Trust (ATST ). Witan has underperformed its benchmarks – not egregiously so – and the cynic can’t help but presume that if investors want a multi-manager that is focused on picking the best active managers, maybe Alliance Trust with its leadership team of top investment advisers from Willis Towers Watson is the better bet.

The board will no doubt be considering what to do next and I’m sure they’ll be approached by every fund management house going but one suspects outfits such as Lansdowne, Majedie or JPMorgan (and especially the JPMorgan Global Growth and Income Trust) will be whispering in the ears of the chair Andrew Ross.

If I had a vote, I’d suggest that there is an opportunity for a single active manager who was almost the exact opposite of Scottish Mortgage. This (high-risk) strategy would consist of a resolute focus on global equities via value-driven opportunities in businesses that are still growing their earnings and margins.

Another way of putting it is that such a strategy might be a perfect counterpoint to the ambitious Scottish Mortgage back-the-tech-entrepreneur strategy. A new fund focus might even mix up some private assets from cheap private equity portfolios which might again mirror the Scottish Mortgage book of later-stage pre-IPO candidates – assuming that Elliott doesn’t prompt an about-turn!

Or if the board felt adventurous, it could throw the towel in on active stock selection and build an ultra-cheap multi-exchange traded fund (or swaps and options) portfolio and refocus attention on smart asset allocation strategies via a highly-rated asset allocation team rather than active fund manager selection.

Who knows, an actively managed investment trust consisting of ETFs might be a useful counterpoint to the coming wave of active ETFs?

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