The ability to trade at short notice, coupled with the use of gearing and holding innovative products such as private placements or convertibles, means investment trusts remain at the core of future investments.
This was the overarching theme at a recent Funds Europe roundtable, which discussed the evolution of the investment trust and its role, both during the pandemic and in a post-covid financial landscape.
Colm O’Brien, UK head of sales at BNP Paribas, said a trust’s ability to remain liquid while investing in illiquid assets, particularly within the past two years, was of significant importance.
“The liquidity point is critical when you look at what is happening in the alternatives space,” said O’Brien.
“Capital is flooding into alternatives as investors look for enhanced long-term returns, and diversification from traditional assets, but in many cases, this can come at a cost: illiquidity, or the inability to be able to access those investments at short notice. The investment trust structure negates that issue as its shares are always tradeable,” he added.
However, one of the criticisms is that the market price for shares in a trust may not reflect the net asset value of the underlying portfolio when exposed to illiquid assets.
“While that’s true, it’s important to remember that it can work both ways: in the right market conditions, shares trade at a premium to NAV, just as they can also trade at a discount,” said O’Brien.
“And particularly when the underlying portfolios hold illiquid assets, the ability to trade at short notice is a highly attractive characteristic of these vehicles,” he added.
Communications director at the AIC, Annabel Brodie-Smith, was keen to point out, however, that the trust structure does not simply serve the alternatives market, adding that these products are key drivers for growth assets.
“It’s important to have that ability to invest in less liquid assets for growth. With unquoted companies, for example, we’ve obviously seen a real boom. Companies are staying private for longer. There are opportunities there for investors to invest in the growth before the market listing,” said Brodie-Smith.
“Also, there is scope for lots of innovation. If you want to invest in anything from space to tech and the UK investment trust is a strong candidate vehicle to access those assets,” she added.
Read the full roundtable discussion here.
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