New launches

Should we be concerned by the lull in the investment company IPO market? As the Financial Times pointed out last week in a story based on data from Winterflood, investment company fund-raisings so far in 2018 are down by around 40 per cent on last year. That appears to be the result of a combination of factors, including nervousness about markets in a much more volatile year for equities and lower valuations in sectors where investment company launches have previously been particularly prominent.

In fact, June was the quietest month for fundraising in the sector for more than two years, Winterflood’s data reveals. So perhaps the investment company industry’s long period of success is beginning to lose momentum. If a buoyant new issues market is reflective of broader demand, you might argue that investment companies, whose popularity with advisers and investors has grown and grown in recent times, now appear to be losing their shine.

Such arguments would be to overlook some important realities, however. Not least, while June certainly was quiet, July has been much busier, with investment companies picking up more than £500m of new money over the month. Also, the IPO lull in the investment companies sector mirrors a similar slowdown across the market as a whole. Last year, equity prices just kept on rising; this year, not so much. As a result, all businesses have thought harder about going to market for the first time.

What does seem to be the case is that it is harder this year to justify launching investment companies offering exposure to more conventional asset classes. When equity markets are volatile, advisers and investors naturally turn to funds with good track records of riding out the ups and downs of the market, rather than new and untested vehicles.

It’s significant that the funds picking up money in July all offered exposure to alternative or specialist asset classes. Tritax EuroBox is a play on the European property logistics industry, the Hipgnosis Songs Fund invests in music royalties and Ashoka India Equity focuses on a single emerging market.

These are the sort of areas where investment companies can really come into their own. The closed-ended structure of an investment company makes it an ideal way to invest in illiquid assets, or markets that are particularly prone to volatility, sparing the manager from the travails of managing inflows and outflows of cash.

All of which is to say that the slowdown in investment company IPOs in 2018 is not the cautionary tale that the figures might at first suggest. Issuance in the sector has always been lumpy and it’s inevitable that broader market anxiety has had an impact on investor sentiment – just as it has across every other type of collective investment vehicle. But investment companies that play to the sector’s strengths and offer something different continue to attract interest and enthusiasm.