AIC end of year review: A year in the life of investment companies
Brexit dividend: Assets hit record high, but far more raised on secondary market that through IPOs.
As 2016 draws to a close the Association of Investment Companies (AIC) has published its annual review of the sector. Overall it’s been a good year for the closed-ended sector, with the average investment company share price total return up 12% and an average discount of -4.7% at the end of November. This was in line with where the average discount began the year at end January, although two percentage points wider than where it closed 2015 (-2.7%).
There has been some discount volatility along the way. Perhaps unsurprisingly, the end of June saw the average investment company discount widen out briefly to -7.3%, its widest in three and a half years, no doubt related to the EU Referendum Brexit result.
The sector also reached a new record for total assets under management, which hit £157.8bn at the end of October – rising by 57% in just over three and a half years.
Ian Sayers, Chief Executive, Association of Investment Companies (AIC) said: “2016 has been a year of change and the investment company sector has also seen its fair share of change from strategic reviews and policy changes, through to management group changes and a proposed merger. We’ve also seen a good number of companies announce changes to their charging structures, with ‘tiered’ charging structures becoming a key trend. Assets under management reached a new record high, boosted by the sector’s high exposure to overseas assets amid sterling’s weakness. And whilst new issue activity has been muted this year, share issuance on the secondary market has been strong, particularly amongst income focussed companies.”
Fundraising in 2016
The rise in the investment company sector’s total assets was boosted by the sector’s large overseas exposure and the fall in sterling. Not surprisingly given all the uncertainty 2016 brought, new issue activity was muted, with four investment companies coming to market, raising £630m, compared to the 17 new issues in 2015 raising £2.6bn (see table below).
New Issues in 2016
| Month | Company | AIC sector | Assets (£m) |
|---|---|---|---|
| Jun | Hadrian's Wall Secured Investments | Sector Specialist: Debt | 80 |
| Nov | Civitas Spcial Housing | Property Specialist | 350 |
| Dec | BB Healthcare | Sector Specialist: Biotechnology and Healthcare | 150 |
| Dec | RM Secured Direct Lending | Sector Specialist: Debt | 50 |
Secondary issues
The amount raised by existing companies issuing new shares in 2016 (the secondary market) was far more at £3bn, which was in line with last year. It was investment companies investing in alternative assets with higher yields which continued to issue the most new shares. Tritax Big Box in the Property Specialist sector raised the most, with the company issuing £550m worth of shares. This was followed by Greencoat UK Wind (£247m) and Next Energy Solar (£180m) both in the Sector Specialist: Infrastructure Renewable Energy sector and Sequoia Economic Infrastructure Income C shares in the Sector Specialist: Infrastructure sector which raised £175m.
Outside of the alternative investment company sectors, Finsbury Growth and Income issued the most new shares (£121m), followed by Personal Assets, in the Flexible Investment sector, and City of London, in the UK Equity Income sector (both raised £50m).
Taking into account both inflows and outflows, the sector saw net fundraising of £0.7bn.
Charges
The number of companies announcing changes to their charging structure continued apace in 2016. A particular trend this year was the number of companies introducing a ‘tiered approach’ or altering their tiered approach to benefit shareholders. Shareholders benefit from a tiered approach as the percentage they pay reduces as the investment company increases in size, capturing some of the economies of scale. Some further 6 investment companies announced they were abolishing their performance fees. Full details on all changes to investment company charges are available on request.
Management group changes
This year there have been a number of management group changes. Please see the table below.
| Month | Company | Management Group | AIC sector | Additional information |
|---|---|---|---|---|
| Feb | Graphite Enterprise | Intermediate Capital Group | Private Equity | from Graphite Capital Management following acquisition by Intermediate Capital Group |
| Feb | Highbridge Multi-Strategy | Highbridge Capital Management | Hedge Fund | from BlueCrest Capital Management |
| Mar | JPMorgan Private Equity | Fortress Investment Group | Private Equity | from JPMorgan Asset Management/Bear Stearns Asset Management |
| Jun | Aberdeen Emerging Markets | Aberdeen Asset Managers | Gloabl Emerging Markets | from Aberdeen Emerging Capital |
| Jun | Aberdeen Frontier Markets | Aberdeen Asset Managers | Global Emerging Markets | from Aberdeen Emerging Capital |
| Aug | LMS Capital | Gresham house Asset Management | Private Equity | from LMS Capital |
| Awaiting | Electra Private Equity | Private Equity | Management contract to be terminated at the end of May and the company to be run by the board |
Merger
BlackRock Income Strategies has proposed to merge with Aberdeen UK Tracker and would be renamed Aberdeen Diversified Income and Growth Strategies. Proposals include a diversified multi-asset strategy with a change in investment objective to target returns of LIBOR+5.5 per cent per annum (net of fees) over rolling five-year periods.
A year of policy changes
Clearly the aforementioned changes made by BlackRock Income Strategies, Aberdeen UK Tracker and Electra involve a policy change. Policy changes have been another key feature of the investment company sector, as the table sets out other changes that investment companies have announced:
| Company | AIC sector | Additional information |
|---|---|---|
| JPMorgan Chinese | Country Specialists: Asia Specific | At the EGM held on 25/01/16, shareholders approved plans to change the company's policy. The new policy allows for a greater allocation to China A Shares. Also, the company's benchmark has been changed from MSCI Golden Dragon Index to MSCI China Index. |
| Highbridge Multi-Strategy | Hedge Funds | At the EGM held on 24/02/16, shareholders approved proposals to amend the company's investment policy. The old policy was to realise assets and return cash to shareholders as and when possible. The new policy is to invest substantially all of the company's assets in Highbridge Multi-Strategy Fund. |
| Jupiter UK Growth | Global | At the EGM held on 18/04/16, shareholders approved proposals to amend the company's investment policy. Previously, the policy was to invest in UK and overseas companies, as well as invest in collective funds. The new policy is to focus investment on UK businesses, remove the use of investment in collective funds and allow the company to use derivative instruments. Furthermore the company's benchmark will now be the FTSE All-Share Index; previously the company benchmarked itself against a composite index of 75% FTSE All-Share Index and 25% FTSE World exUK Index. |
| LMS Capital | Private Equity | At the EGM held on 16/08/16, shareholders approved proposals to amend the company's investment policy. Previously, the policy was to realise assets and return cash to shareholders as and when possible. The new policy will be to invest substantially all of the company's assets in private equities. |
| Syncona (previously named BACIT) | Sector Specialist: Biotechnology and Healthcare (previously Flexible Investment) | At the EGM held on 14/12/16, shareholders approved plans to amend the company's investment policy. The company previously only invested in leading long-only and alternative investment funds across multiple asset classes. The new policy allows the company to substantially increase its investments in life sciences with a view to building standalone companies capable of achieving valuations in excess of £1,000,000,000. Over time it is the company's intention to become a life science investment company. |
| Standard Life European Private Equity | Private Equity | In December a number of changes were announced which included the removal of the size and geographic restrictions on its private equity investments, although a European focus will be retained. The fund will be able to invest in listed private equity on an opportunistic basis and assuming shareholder approval, the name will be changed to Standard Life Private Equity Trust. |
| Alliance Trust | Global |
In December the company announced the results of its strategic review. A new approach to investment management to be adopted to increase the likelihood of delivering consistently the performance target:
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Notes
- Produced by the AIC. Please note that the information contained is not guaranteed to be accurate.
- 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 342 members and the industry has total assets of approximately £154 billion.
- 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.
