AIC welcomes Treasury’s focus on investment companies as crucial providers of patient capital

HM Treasury today recognised that investment companies have a significant role as providers of patient capital. Its consultation paper, Financing Growth in Innovative Firms, says that “the creation of more listed funds could support the review’s overall aim of catalysing greater effective investment in patient capital”.

Guy Rainbird, Public Affairs Director of the Association of Investment Companies (AIC) said: “Closed-ended listed funds can make long-term investments in innovative, unquoted businesses because their structure allows investors to buy and sell their shares with no need to trade holdings in the underlying portfolio. This empowers fund managers to make investment decisions driven solely by the growth potential of businesses they choose to support.

“The Treasury has also recognised the high levels of transparency offered by investment companies. This in turn enables efficient asset allocation between funds and, alongside the daily trading provided by their stock market listing, creates the basis for pension funds and IFAs to increase their exposure to patient capital investments.

“An important challenge identified by the report is the need to increase understanding of patient capital: specifically, its potential to increase overall investment returns as part of a balanced portfolio. Achieving this could provide the basis for significantly increasing the allocation of funds to patient capital investment and accelerating the long-term growth potential of the UK economy.”

The AIC Private Equity sector, which invests in unquoted companies, managed total assets of £13.95 billion at the end of June. Outside this sector, many other investment companies invest in unquoted companies alongside quoted equities and other assets.

Supporting smaller companies: venture capital trusts (VCTs)

HM Treasury’s consultation paper also considered the value of existing government initiatives to encourage the provision of patient capital, including VCTs.

Guy Rainbird, Public Affairs Director of the Association of Investment Companies (AIC) said: “VCTs are an important source of capital for small businesses with high growth potential. Together they act as a network of experienced, professional investors with the capability to target businesses seeking finance across the UK. AIC research shows that despite the weight of London and the South East within the UK economy, 44% of VCT investments made since November 2015 have gone to businesses outside London and South East England.

“VCT investment also creates jobs. Our study shows that companies currently backed by the scheme have created 27,000 jobs since the date of the first investment by a VCT.”

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Notes

1. 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 349 members and the industry has total assets of approximately £168 billion.
2. 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.