The amount of money leaving the investment company sector accelerated over the first quarter as a wave of consolidation, tender offers and share buybacks nearly exceeded the total withdrawn last year.

JPMorgan Cazenove analyst Chris Brown estimated that £4.9bn left the sector in the first three months of the year, including through share buybacks, while £1bn was added, giving a net outflow of £3.9bn, not far off the £4.2bn withdrawn in the whole of 2023.

The single largest departure from the sector was the £1.8bn LXi real estate investment trust (Reit), which merged with £2.1bn logistics fund LondonMetric Property (LMP).

‘We consider this a departure from the sector because LXi was a chapter 15 listed investment company within the AIC closed-end funds universe and LondonMetric is a chapter 6 listed commercial company that is not a constituent of the AIC closed-end funds universe,’ Brown said.

Similarly, the £392m private assets group Pollen Street (POLN) was another technical departure after the former Honeycomb debt fund merged with its fund manager and became a commercial company.

Good governance

Five companies merged as boards sought to create larger, more liquid funds, including JPMorgan Mid Cap, Abrdn China, Henderson Diversified Income and JPM Multi-Asset Growth & Income, while Ediston Property sold its portfolio to Realty Income. Including both the rollover assets and any cash paid out to shareholders, outflows totalled £792m.

The beneficiaries of these mergers were: JPMorgan UK Small Cap Growth & Income (JUGI), which gained £192m; Fidelity China Special Situations (FCSS ) combined with Abrdn China to win rollover assets of £127m; STS Global Income & Growth (STS ) combined with stablemate Troy Income & Growth, expanding by £118m; while Henderson High Income (HHI ) grew by £72m after taking on Henderson Diversified Income.

RTW Biotech Opportunities (RTW) added £134m new shares after acquiring former Neil Woodford holding Arix Bioscience.

Activists and arbitrageurs made their presence known as they snapped up discounted shares and pressed boards to act on them. Alexander Darwall’s European Opportunities Trust (EOT ) returned £275m to shareholders via an oversubscribed tender offer, while Fidelity Emerging Markets (FEM ) returned £101m. US activist Saba Capital is a shareholder in both trusts.

Faced with double-digit discounts to net asset value, boards stepped up their share buyback programmes over the quarter as well, with Baillie Gifford’s flagship Scottish Mortgage (SMT ) submitting to pressure from activist Elliott and announcing it would return £1bn to shareholders over the next two years.

The £12.4bn SMT already leads the buyback league table, contracting through £137m of share purchases in the first quarter. Finsbury Growth & Income (FGT ), Personal Assets (PNL ) and Smithson (SSON) all shrank with respective buybacks of £94m, £75m and £66m. Capital Gearing (CGT ) matched Smithson’s £66m with a reinstated buyback programme after converting its share reserves into distributable capital.

Any takers?

The sector was beset by negative sentiment, but several did manage to raise equity as their shares traded at a premium.

JPMorgan Global Growth & Income (JGGI) led the charge, raising £241m through a combination of a placing, rollover proceeds from JPMorgan Multi-Asset and money raised from ongoing regular share issuance.

WhiteOak’s Ashoka India (AIE) and Invesco Bond Income Plus (BIPS ) also raised £35m and £16m apiece as well.