Investment trust launches dwindle in 2011

IMA figures show net inflows drop to levels last seen at height of crisis, with just five trusts launched this year compared to 15 in 2010.

Both the open-ended and closed-ended fund spaces have seen new launches and inflows fall off a cliff this year as investors shy away from volatile markets.

Last week, the Investment Management Association’s latest figures showed net sales into open-ended funds have fallen to their lowest level since the height of the financial crisis.

Overall net inflows stood at £568m in September, the lowest since October 2008, making Q3 the slowest quarter in terms of sales since the third quarter
of 2008.

The investment trust industry has also suffered from a lack of new capital this year. So far new products into the market and C-share issues have raised just £873m.

Last year, total new capital into the sector stood at £2.3bn, with 15 launches, while this year there has been just five, AIC data revealed.

A number of fund management groups have pulled the plug on prospective launches due to a lack of investor demand. 

Invesco Perpetual, Aberdeen and Schroders all failed to attract enough capital to get their planned launches into the marketplace, blaming macroeconomic uncertainty for stifling investor enthusiasm.

Bestinvest’s investment trust analyst Simon Moore said many firms have approached potential buyers to assess demand for planned products, but found in many cases mandates were too specialist to have wide appeal.

He said the larger asset managers have struggled to get funds into the market because their capital targets are far too high.

“There have been plenty of groups knocking on my door but the prospective launches have been far too specialist,” said Moore.

“There have been a number of real estate and climate change products that have been marketed, but against difficult market conditions these are too obscure for investors to part with their cash.

“When the big groups try to launch a trust there is a lot of reputational risk and this is why they target at least £100m, but with so much uncertainty in the global economy, they are never going to raise this much.

“When the open-ended funds are struggling to draw in sufficient assets, investment trusts have, quite frankly, not got a chance.”

Robin Stoakley, managing director at Schroders, said the group shelved plans for the Opus Commodity trust after the product failed to generate sufficient interest. He said there are no plans to revisit the space yet.

“We have no plans to launch any new investment trusts. You only get one shot to launch a trust and, for us, critical mass is £100m. Getting people to commit to a new launch is difficult.

“With our planned commodities trust, people were interested in the idea, but it would only have raised £50m, which would have meant lower liquidity and a higher TER.”

A spokesperson for the Association of Investment Companies said the level of new capital flowing into the closed-ended space has lagged this year because of investors’ macro fears.

“New launches are affected by market sentiment so, for example, in 2009, when confidence post-credit crunch was low, there were just four new launches raising £566m. A similar story has played out this year due to the market volatility fuelled by concerns over the eurozone debt and the global economic slowdown.”