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AIC end of year review 2019

18 December 2019

Fundraising from existing companies hits all-time high.

Despite political uncertainty, trade wars and worries about global growth all presenting challenges in 2019, it’s been a strong year for investment companies. Industry assets hit an all-time high of £200bn in July. The average investment company discount reached its narrowest-ever level, -0.4%, at the end of February, though it had widened slightly to -3.2% by the end of November. The average investment company has returned a healthy 15% in the year to date (between January 1st and December 13th).

Existing investment companies raised a record £6.9bn in 2019. This beat the previous all-time high of £6.3bn in 2017 and is significantly ahead of 2018, when £4.8bn was raised in secondary fundraising. The record year also included the highest ever H1 period (£4bn) and the best ever month (£1.28bn in October) for fundraising from existing companies.

41 investment companies cut fees in 2019. Different ways of reducing fees included lowering management fees, abolishing performance fees and the introduction of tiered fees where charges fall as assets increase in size. A table of the six investment companies which introduced tiered fees is below.

Ian Sayers, Chief Executive of the Association of Investment Companies (AIC), said: “It’s been a successful year for investment companies. Assets reached a record level and existing investment companies raised £6.9bn in 2019, an all-time high, driven by particularly strong fundraising in the alternatives sectors. This record year for fundraising demonstrates the strong demand for alternative, income-generating assets which are well suited to the investment company structure.

“Investment companies are continuing to cut fees, following the trend of recent years, and the percentage of investment companies with tiered fees has more than doubled in the last five years. Independent boards are a major advantage of investment companies and it’s good to see them continuing to work for shareholders’ benefit by bringing charges down.”

Introducing tiered fees

The move to tiered fees has been a key trend for investment companies in recent years. 39% of investment companies excluding VCTs currently have tiered fees, more than double the proportion five years ago when 18% of the industry had tiered fees.

In its recent report, Innovations in retail fund fees, CFA UK found tiered fees were the “best for retail investors” and that they “are an effective way of aligning the interests of managers and investors”.

Six investment companies introduced a tiered fee in 2019:

Tiers effective from

Company

AIC sector

January

F&C Investment Trust

Global

January

UK Commercial Property

Property – UK Commercial

April

3i Infrastructure

Infrastructure

July

Atlantis Japan Growth

Japanese Smaller Companies

July

Golden Prospect Precious Metals

Commodities & Natural Resources

July

JPMorgan US Smaller Companies

North American Smaller Companies

Record fundraising by existing investment companies

Of the record £6.9bn raised by existing investment companies, £1.62bn was raised by companies in the Renewable Energy Infrastructure sector, the highest of any sector. Interestingly, in the AIC’s annual fund manager poll managers viewed Alternative Energy as the most attractive sector on a five-year view.

Renewable Energy Infrastructure was followed by Infrastructure (£952m), Property – UK Commercial (£753m) and Royalties (£424m), a new sector created this year in the AIC’s sector review.

The biggest fundraisings were completed by The Renewables Infrastructure Group (£530m) and Greencoat UK Wind (£506m) in the Renewable Energy Infrastructure sector and Hipgnosis Songs Fund (£424m) in the Royalties sector.

IPOs

IPO activity was subdued in 2019 compared with 2018. Eight new investment companies were launched this year raising £1.37bn, compared to 2018 when 19 investment companies launched raising £3.01bn (the 2018 figure was the third-highest amount ever raised by investment company IPOs). Of the £1.37bn total raised by new issues in 2019, the Renewable Energy Infrastructure sector took the largest share, with three investment companies raising £640m.

Month

Company

AIC sector

Total assets (£m)

Mar

Schiehallion

Private Equity

361

Apr

US Solar Fund

Renewable Energy Infrastructure

153

May

Riverstone Credit Opportunities Income

Debt – Loans & Bonds

79

Jun

Aquila European Renewables Income

Renewable Energy Infrastructure

137

Jun

Cameron Investors

UK Equity Income

10

Sep

JPMorgan Global Core Real Assets

Flexible Investment

149

Oct

RTW Venture

Biotechnology & Healthcare

130

Dec

Octopus Renewables Infrastructure Trust

Renewable Energy Infrastructure

350

Long-term borrowings

In recent years, many investment companies have locked in long-term borrowings at low interest rates. This trend continued in 2019, with seven investment companies taking on multi-decade borrowings.

Date

Company

Value

% of net assets

Maturity

Interest rate

Apr-19

Henderson International Income

€30m

8.90%

25 years

2.43%

Apr-19

Scottish American

£80m

15.20%

23/27 years

3.12%

Jun-19

F&C Investment Trust

£150m

3.90%

7/23/30/40 years

0.93%(€)/2.59%/

2.69%/2.72%

Jul-19

Pershing Square

$400m

7.30%

20 years

4.95%

Aug-19

BMO Global Smaller Companies

£35m

4.00%

20 years

2.26%

Oct-19

Witan

£50m

2.50%

32 years

2.39%

Dec-19

BlackRock Smaller Companies

£20m

2.70%

25 years

2.41%

Source: Company & Numis Securities Research.

Management group changes

Six investment companies announced new management groups in 2019.

Month

Company

New management

Old management

Apr

Ground Rents Income

Schroder Real Estate Management

Brook Macdonald

Jun

Worsley Investors

Worsley Associates

AXA Investment Managers

Nov

Baillie Gifford European Growth Trust

Baillie Gifford

Edinburgh Partners

Nov

European Opportunities

Devon Equity Management

Jupiter Unit Trust Managers

Dec

Schroder UK Public Private Trust

Schroder Investment Management

Woodford Investment Management

Dec (announced)

Edinburgh Investment Trust

Majedie

Invesco Asset Management

-Ends-

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Notes

  1. Quoted average discounts are the weighted average ex-par discounts of all investment companies excluding 3i and VCTs as at 28 February 2019 and 30 November 2019. Source: Morningstar.
  2. 15% is the share price total return of the weighted average investment company excluding 3i and VCTs from 1 January 2019 to 13 December 2019.
  3. £6.9bn secondary fundraising is from 1 January 2019 to 10 December 2019, closed issues admitted to trading only. Source: AIC.
  4. The percentage of investment companies with tiered fees is taken from the investment company industry excluding VCTs. 39% is 139 companies out of 357 at 30 November 2019. 18% is 59 companies out of 326 at 30 November 2014.
  5. IPO data is from 1 January 2019 to 17 December 2019. Source: AIC
  6. 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 362 members and the industry has total assets of approximately £199 billion.
  7. 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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