It feels sometimes as though there is an all-pervading gloom that has descended on the investment companies’ sector as share price discounts continue to widen. It does not seem to matter how often you point out the illogicality of share prices, as I did in last week’s article, the situation continues to deteriorate.

I took the plunge and bought some Digital 9 Infrastructure (DGI9 ) afterwards. I know that in the short term the price may yet weaken further but I think that, if I am patient, I will be rewarded when it sells its Verne Global stake.

We had another case in the past week of a fund on a big discount demonstrating the validity of its net asset value (NAV). Octopus Renewables Infrastructure (ORIT ) announced on Friday the sale of its two Polish wind farms at a price which could be as much as 19% higher than the valuation that was placed on them at 30 June. ORIT trades on a 26% discount and offers a yield of just above 7%. In the short term, the proceeds of around £90m will be used to reduce the trust’s debt.

Deals like this ought to shift the dial on discounts but this is not happening. HICL Infrastructure’s (HICL ) discount widened further last week despite its £200m asset sale at a premium to asset value. There is an incredible £927m gap now between its NAV and its market valuation. As I have said before, valuation opportunities like that could easily attract buyers for the whole company. Yet the threat of bids, even evidence of them, does not shift the dial.

On Hipgnosis Songs Fund (SONG ), I have decided to vote against both the proposed transaction (at the EGM) and the continuation of the fund (at the AGM). Talking to various people over the past few days, the strength of feeling against the manager following its attempt to profit at the fund’s expense through the proposed transaction, suggests to me that there is a good chance that it will lose its continuation vote. Certainly, the concessions that have been made in an attempt to stave this off seem to be inadequate.

I am conscious of vacillating on this topic. On the one hand, I do not think that closed-end funds should wind up just because they are on big discounts. However, I think the SONG situation is analogous to that at ThomasLloyd Energy Impact (TLEI ) where investors lost faith in the manager and so voted against continuation, but I think there is a realistic chance that it could have a new lease of life under a new manager. There is no vote scheduled to remove the manager and so a vote against continuation is the next best thing.

Tackling discounts on investment companies with illiquid assets is tough and at the QuotedData conference last week a few investors questioned whether shrinking these funds made sense, some suggesting that the solution was to promote these funds more widely and attract fresh investors. However, I feel that the degree of capital loss that investors have suffered so soon after backing these funds demands some response, particularly if they want to expand when sentiment recovers, and discounts are eliminated.

Nevertheless, quite a few funds in the alternative assets space have been finding ways to fund buybacks as a way of tackling their discounts. However, it has to be acknowledged that, as yet, this has not worked. One idea that I have been toying with is that these alternative asset funds adopt a policy of providing periodic exit opportunities instead.

Regular tender offers have been a factor in Gulf Investment (GIF ) trading close to asset value in recent years. It is an equity fund with a reasonably liquid portfolio. However, I think this fund goes too far in allowing 100% exits as it currently does. This runs the risk of a very good fund – it beat its benchmark by 21.7 percentage points over the 12 months ended 30 June 2023 – disappearing just because some temporary shock triggers a run for the exit. Nevertheless, the regular exit opportunities have helped tidy up the register and it has been expanding in recent months, bucking the trend in the industry.

For the alternative asset funds, I would suggest the chance to cash in a percentage of the fund every five years or so, with exiting shareholders swapping ordinary shares for redeemable shares that the fund would then redeem as soon as it could generate sufficient funds. That would placate those who want an exit but do not want to crystalise a loss, without prejudicing the manager’s ability to run a fully invested portfolio for the benefit of ongoing shareholders.

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