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A little while back we were invited to add our signatures to a petition brought by Baronesses Altmann and Bowles, tireless campaigners on behalf of the investment trust industry. It was directed to the Rt. Hon Torsten Bell, regarding the glaring omission of investment companies as “qualifying assets” within the Pension Schemes Bill.

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The Government, via their Mansion House Accord, is an agreement between pension providers to direct 10% of their monies into UK assets in an attempt to fuel economic growth. Until now, the Government’s preferred choice of vehicle is a new open-ended fund called a Long Term Asset Fund (LTAF). These have been designed to invest into illiquid assets such as private equity, infrastructure and real estate, something that investment companies already have a proven track record in so it made no sense that they should not be considered.  

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The key word here is illiquid. The benefit of the closed-ended structure of investment companies, a source of truly permanent capital,  is the ability for investors to sell their shares on the open market whenever they choose. It is not necessary for the investment manager to divest any of the underlying assets to meet redemptions. As a result, it allows the manager to take a longer-term approach. It is ironic therefore that LTAFs , being open-ended, cannot provide the same flexibility and investors are likely to need to give notice if they want to sell. How often have we seen other open-ended funds suspend redemptions when it has been hard to sell the underlying assets at short notice, particularly property funds. Possibly LTAFs might have large sums of cash available for just this purpose, but that slightly defeats the object of the investment in the first place. Perhaps the difficulty of getting out is intended to encourage long term investment.

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Over the last couple of decades, the investment trust industry has invested over £80 billion into UK infrastructure, energy, property and private companies. Without this patient investment, the UK’s growth in renewables, technology and life sciences would have been significantly restrained. At least now these two schemes can complement each other, offering a wider choice to investors.  But maybe it’s time to consider reviewing how the State pension is funded; perhaps we too should create a sovereign wealth fund, as the Scandinavians have, to contribute to such infrastructure products in return for tax breaks before the government demands how private individuals invest their own money.

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Comments from James Scott-Hopkins, Founder of EXE Capital Management. The views are those of the author only.

The above does not constitute a recommendation to buy specific funds or assets and advice should be sought from your financial advisor as to the appropriateness of this in your portfolio. The value of investments can fall as well as rise. Past performance is no guarantee of future returns.

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