Industry Voice: Why innovative funds choose London's listed funds market

It’s a market that has been in existence for more than 150 years and London’s listed funds market keeps on innovating. Find out how.

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Industry Voice: Why innovative funds choose London's listed funds market

It's a market that has been in existence for more than 150 years and London's listed funds market keeps on innovating. Last year alone we saw the emergence of three new alternative asset classes under the listed fund structure, including space technology, life science property, and clean hydrogen.

And it's not only about IPOs; 2021 was a record-breaking year for capital raising for London's listed investment funds. 75% of the capital raised in the sector was through further issuance by existing listed investment funds, taking advantage of London's deep pools of capital from world-class institutions and a broad range of investors.

For example, Cordiant Digital Infrastructure Ltd, the first listed UK investment fund dedicated to investing in data centres, telecommunication towers and fibre networks, raised £370m in its 2021 IPO and has since returned to the market twice to raise an additional £385mn (more than what it raised at IPO) in further issuance.

Throughout its history, the market has always been at the forefront of innovation and has built a reputation for being open, responsive, and receptive to new investment ideas. 25 funds on the market have survived for over 107 years and witnessed more market cycles than probably any other financial instrument anywhere in the world - demonstrating the flexibility of the structure and its robustness.

Between January 2015 and December 2021, the FTSE All-share Equity Investment Trust Index, an index which tracks the performance of listed funds, rose over 126% - outperforming major European indices including the FTSE100, Euronext 100 and DAX.

"Funds investing in alternative asset classes have been a strong driver for growth in the wider funds market" says Dr. Darko Hajdukovic, Head of Platforms and Products at London Stock Exchange plc. Over the past decade, the sector's assets have grown by 150% enabling investors to get exposure to new and less correlated investments ranging from digital infrastructure, music royalties and sustainable infrastructure.

The green economy has been another strong driver of growth within the alternative space. Funds accredited with the London Stock Exchange's Green Economy Mark, a designation recognising companies and funds that derive more than 50% of their revenues from products and services that are contributing environmental objectives, represented over 33% of the further capital raised by funds in 2021.

Other fund strategies launched on the London Stock Exchange support innovation in technologies that aim to provide solutions to the biggest global issues facing humankind, such as climate change. Last year, we saw the launch of the first listed fund dedicated to investing in clean hydrogen, raising £105m. Clean hydrogen, recognised by the UK Government's Build Back Green strategy, has a key role to play in the decarbonisation for the energy transition.

This not only demonstrates how capital gets channelled directly into productive finance from public markets, but also how efficiently these funds can find a home at the London Stock Exchange, where they can scale up and grow.

The growth of alternative-focused funds, however, could not have been facilitated without London's closed-ended structure, a Victorian invention, which is a key differentiator of London's funds market. Having a fixed number of shares in issue at any one time enables fund managers to invest in illiquid assets and focus on long-term investment decisions, rather than buying and selling investments as investors move money into or out of the fund. Therefore, fund managers can concentrate more on growing and evolving their strategies.

"The investment trust structure provides the answer for asset managers who want to bring private assets - and it is particularly well suited to bring the benefits of global infrastructure assets - to private individual investors who are looking for long-term investments," says Anthony Catachanas, CEO and co-founder of Victory Hill Capital Group, which manages VH Global Sustainable Energy Opportunities plc, a fund offering investors direct exposure to a diversified portfolio of energy infrastructure investments.

So who facilitates daily liquidity to investors? It is the London Stock Exchange and the ecosystem that was built around the market. Home of the world's most internationally connected trading platform, investors can trade funds on the London Stock Exchange much like any other business.

"One of the biggest pools of liquidity worldwide is undeniably here in London, which is a global hub of finance. Not only can we have access to deep pockets of capital here, we can also resolve mechanical issues around liquidity through the investment trust structure. It's astonishing that we're rediscovering this - 150 years after the birth of this market. It is the best format out there," adds Anthony Catachanas.

If you're interested in listing your investment fund on the London Stock Exchange, you can contact the Investment Funds team by email at [email protected] or to learn more about the listed fund market click here


This post is funded by London Stock Exchange