They say the City never sleeps, and certainly from an investment company perspective there’s probably been a good few lawyers and corporate brokers burning the midnight oil this year.
It has been another strong year for investment company IPOs (new launches), with the sector raising £1.8bn so far this year – almost level pegging with the £2.0bn at this stage last year, which itself was a good year for IPOs.
There have been eight new issues so far this year across a range of sectors, from peer to peer lending, distressed debt and property through to renewable energy infrastructure. So far, in keeping with recent years, launches have tended to be in niche, specialist sectors but again, one key, unifying theme has been income.
The new launches we have seen have tended to be in higher yielding sectors, with six of this year’s IPOs offering target yields of six per cent or above.
With the pension changes which abolish the requirement to buy an annuity on their way next April, it seems likely that investors will be seeking ways of sourcing income for some time to come. The closed-ended structure makes investment companies particularly useful for those seeking access to illiquid sectors such as infrastructure and property.
The highest amount of money we have seen raised in the sector so far this year has been the Jersey domiciled Kennedy Wilson Europe Real Estate investment company in the Property Direct: Europe sector, which raised £910m in February.
Of the eight new issues we have seen this year, only three are domiciled in the UK, with the rest domiciled in Guernsey or Jersey. Many of the launches we have seen in recent years have been offshore.
But what does this mean for investors? In actual fact, there are far more similarities than differences between UK investment trusts and offshore closed-ended investment companies. They are all closed-ended, listed on a stock exchange, with an independent board of directors.
One difference between offshore investment companies and UK investment trusts would be that generally no stamp duty would be payable on the purchase of offshore company shares, but it would be payable on the purchase of investment trust shares. Also, UK investment trusts can benefit, depending on the nature and location of their investments, from the UK’s extensive double tax treaty network.
Non-UK companies may not be able to benefit from the same arrangements. Ultimately, choice of domicile is a commercial issue for the company. Over the years the UK and the offshore domiciles – Guernsey and Jersey – have converged in many respects so that tax and regulatory standards are similar. So closed-ended offshore and onshore investment companies look and feel very much the same.
The second half of the year also looks set to be busy for IPOs, although it goes without saying that much of this will be market dependent.
One of the most high profile is Terry Smith’s Fundsmith Emerging Equities Trust, which is aiming to raise up to £250m through its IPO. It also appears that a number of investment companies which are in vogue will be issuing new shares to meet demand. So, it looks like another busy year is in full swing.