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AIC end of year review

18 December 2017

Record secondary fundraising in 2017.

2017 has been a year of records for the investment company sector with total assets under management hitting an all-time high of £174bn at the end of August and secondary fundraising reaching a record £6bn.

This year has been a strong year for performance with the average investment company up 14% in share price total return terms, to the end of November 2017. Assets remain close to a record level with £171bn total assets under management at the end of November 2017, growing by 77% in five years from the end of December 2012.

At the end of May this year, the average discount reached 1.8%, its narrowest ever. Over the course of the year discounts have narrowed from 3.8% at the end of December 2016 to 2.4% at the end of November.

Ian Sayers, Chief Executive of the Association of Investment Companies (AIC) said: “2017 has been a record breaking year for the sector. The investment company sector has delivered strong, positive returns over 1, 3, 5 and 10 years, the number of IPOs has increased on last year and secondary fundraising has reached a record level. This has been driven by the sector’s unique advantages in delivering a higher and growing income and most of this was from investment companies investing in alternative assets such as infrastructure and property, which are much better suited to the closed-ended structure of an investment company.

“This year also saw adviser and wealth manager purchases of investment companies reach record levels, with every chance that they might exceed £1bn in 2018. It’s not surprising that with the demand for the sector being so strong, discounts have narrowed and continue to trade close to an all-time low.”

Fundraising - new issues

Demand for new issues bounced back in 2017 with 15 new issues so far this year, raising £2.5bn, up 92% in comparison to 2016 when there were 7 new issues raising £1.3bn. The property sector has dominated new issues accounting for 56% of the assets raised (£1.4bn) and 8 out of 15 new issues. The largest new issue this year was BioPharma Credit from Sector Specialist: Debt, which raised £605.8m in March.

Month

Company

AIC sector

Total assets
(£m)

Jan

TOC Property Backed Lending

Sector Specialist: Debt

17.3

Feb

LXI REIT

Property Direct - UK

138.2

Mar

BioPharma Credit

Sector Specialist: Debt

605.8

Mar

Impact Healthcare REIT

Property Specialist

160.0

Apr

EJF Investments

Sector Specialist: Financials

68.2

May

Downing Strategic Micro-Cap

UK Smaller Companies

55.6

May

Jupiter Emerging & Frontier Income

Global Emerging Markets

90.0

May

PRS REIT

Property Direct - UK

250.0

Jun

AEW UK Long Lease REIT

Property Specialist

80.5

Jun

ScotGems

Global Smaller Companies

50.3

Jul

Greencoat Renewables

Sector Specialist: Infrastructure - Renewable Energy

241.7

Jul

Residential Secure Income REIT

Property Specialist

180.0

Aug

Triple Point Social Housing REIT

Property Specialist

200.0

Sep

Warehouse REIT

Property Specialist

190.8

Dec

Aberdeen Standard European Logistics Income

Property Direct - Europe

187.5

Secondary fundraising

2017 has been a record year for existing companies issuing new shares (secondary fundraising). Over the year to 14 December, secondary fundraising has reached an all-time high of £6bn. This is £1bn more than the whole of 2016 and £0.5bn higher than the previous record in 2015.  

It was investment companies investing in alternative assets with higher yields which continued to issue the highest number of new shares this year. The Sector Specialist: Infrastructure issued the highest value of shares (£1.35bn), followed by the Property Specialist sector (£0.97bn), Sector Specialist: Infrastructure – Renewable Energy (£0.79bn) and Sector Specialist: Debt (£0.76bn).

Long-term debt

This year has seen a surge in the number of investment companies taking advantage of current interest rate levels and issuing long-term, fixed rate debt (please see below table from Numis Securities Research).

Company

Date

Value

% of net assets

Maturity

Interest rate

Murray Income

Nov-17

£40m

7.0%

10yrs

2.51%

JPM Claverhouse

Mar-2020

£30m

7.2%

25yrs

3.22%

Scottish Mortgage

2020

£20m

0.4%

24yrs

3.65%

Merchants

Dec-17

£35m

6.2%

35yrs

2.96%

British Empire

Nov-17

€20m

1.9%

20yrs

2.93%

City of London

Nov-17

£50m

3.6%

32yrs

2.94%

Witan

Nov-17

£30m

1.6%

37yrs

2.74%

Temple Bar

Oct-17

£25m

2.7%

30yrs

2.99%

Blackrock Smaller Companies

May-17

£25m

3.8%

20yrs

2.74%

Scottish Mortgage

Apr-17

£45m / £30m / £30m

2.2%

25 / 27 / 30yrs

3.05% / 3.3% / 3.12%

Lowland

Jan-17

£30m

7.8%

20yrs

3.15%

Foreign & Colonial IT

Jun-16

£25m / £50m

2.7%

12yrs / 15yrs

2.80% / 3.16%

Henderson Smaller Companies

May-16

£30m

5.6%

20yrs

3.33%

TR Property

Feb-16

€50m / £15m

3.7% / 1.5%

10yrs / 15Yrs

1.92% / 3.59%

British Empire

Jan-16

£30m / €30m

7.5%

20yrs

3.8%

Dunedin Income Growth

Dec-15

£30m

7.8%

30yrs

3.99%

Law Debenture

Sep-15

£75m

14.2%

30yrs

3.77%

JPMorgan European

Aug-15

€50m

12.2%

20yrs

2.69%

Foreign & Colonial IT

Jul-15

£50 in €

1.8%

7yrs

1.69%

Henderson High Income

Jul-15

£20m

10.8%

19yrs

3.67%

Bankers

May-15

£50m

7.6%

20yrs

3.68%

RIT Capital Partners

May-15

£151m

6.3%

16yrs*

3.45%*

Witan

Apr-15

£54m / £21m

3.8% / 1.5%

30yrs / 20yrs

3.47% / 3.29%

Alliance Trust

Jun-14

£100m

3.5%

15yrs

4.28%

Perpetual Income & Growth

Mar-14

£60m

6.4%

15yrs

4.37%

City of London

Dec-13

£35m

3.1%

15yrs

4.53%

Temple Bar

Sep-13

£50m

7.0%

15yrs

4.05%

Source: Company & Numis Securities Research

Charges

Investment companies have continued to announce changes to their charging structures throughout 2017, with the trend for introducing tiered fees or amending tiered fee structures continuing. A total of 23 investment companies announced they would be introducing or amending their tiered fee structure.

The sector has continued to see a reduction in the number of companies with a performance fee in place, with seven companies abolishing their performance fee in 2017.

Other developments

Ten investment companies changed their name in 2017. Please see the table below for full information.

Month

Company

AIC sector

Jan

Aberdeen New India (previously New India)

Country Specialists: Asia Pacific

Jan

Standard Life Private Equity (previously Standard Life European Private Equity)

Private Equity

Feb

Aberdeen Diversified Income & Growth (previously BlackRock Income Strategies)

Flexible Investment

Feb

F&C UK High Income (previously Investors Capital)

UK Equity & Bond Income

Apr

SQN Secured Income (previously SME Loan)

Sector Specialist: Debt

May

Blue Capital Alternative Income (previously Blue Capital Global Reinsurance Fund)

Sector Specialist: Insurance & Reinsurance Strategies

Jun

Polar Capital Global Healthcare (previously Polar Capital Global Healthcare Growth & Income)

Sector Specialist: Biotechnology & Healthcare

Nov

Premier Global Infrastructure (previously Premier Energy & Water)

Sector Specialist: Utilities

Nov

Chenavari Toro Income (previously Toro)

Sector Specialist: Debt

Dec

Gulf Investment (previously Qatar Investment)

Country Specialists: Other

Investment company sector net fundraising to 14 December 2017

 

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017
YTD

Total money in (£bn)

4.36

3.92

0.78

1.31

1.66

4.05

7.63

9.06

2.86

2.85

3.24

2.42

2.74

6.91

10.20

9.35

6.34

8.44

Total money out (£bn)

-3.23

-1.83

-1.67

-1.41

-3.10

-4.23

-4.57

-5.70

-3.99

-5.24

-2.87

-3.19

-2.64

-3.35

-2.99

-2.54

-4.89

-9.15

Net fundraising (£bn)

1.13

2.09

-0.88

-0.10

-1.43

-0.19

3.06

3.36

-1.13

-2.40

0.37

-0.77

0.10

3.56

7.20

6.82

1.44

-0.70

Total IPO (£bn)

3.81

3.05

0.52

1.10

1.21

3.07

5.64

5.97

1.03

0.77

1.72

0.88

0.81

2.90

6.42

3.71

1.31

2.49

Total secondary issues (£bn)

0.55

0.86

0.26

0.21

0.46

0.98

1.99

3.09

1.49

2.07

1.48

1.47

1.87

3.86

3.77

5.42

4.98

5.96

-Ends-

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Notes

  1. Data is to 30 November 2017 based on the last official close price at the month end, on a % share price total return basis. No expenses taken into account. Source: Morningstar.
  2. The Association of Investment Companies (AIC) was founded in 1932 to represent the interests of the investment trust industry – the oldest form of collective investment. Today, the AIC represents a broad range of closed-ended investment companies, incorporating investment trusts and other closed-ended investment companies and VCTs. The AIC’s members believe that the industry is best served if it is united and speaks with one voice. The AIC’s mission statement is to help members add value for shareholders over the longer term. The AIC has 347 members and the industry has total assets of approximately £171 billion.
  3. Disclaimer: The information contained in this press release does not constitute investment advice or personal recommendation and it is not an invitation or inducement to engage in investment activity. You should seek independent financial and, if appropriate, legal advice as to the suitability of any investment decision. Past performance is not a guide to future performance. The value of investment company shares, and the income from them, can fall as well as rise. You may not get back the full amount invested and, in some cases, nothing at all.

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