Why ITs should use zeros not banks for financing

clock

Investment companies are being urged to issue zero dividend preference shares (ZDPs) rather than rely on banks to provide financing, to help ride out short term market volatility.

Broker firm Fairfax said in shorter market cycles ZDPs offer a smoother ride, as opposed to other forms of gearing. Colin Reid, research analyst at Fairfax, said investment companies with stakes in illiquid asset classes, such as smaller companies, should issue ZDPs instead of turning to banks. He argues ZDPs will increase the trust’s ordinary share dividend, while also subsequently reducing the discount.  “Conventional long-term bank debt has been more difficult to obtain as a result of the credit squeeze, and ZDPs are being recognised as a relatively cost effective form of long-term...

To continue reading this article...

Join Investment Week for free

  • Unlimited access to real-time news, analysis and opinion from the investment industry, including the Sustainable Hub covering fund news from the ESG space
  • Get ahead of regulatory and technological changes affecting fund management
  • Important and breaking news stories selected by the editors delivered straight to your inbox each day
  • Weekly members-only newsletter with exclusive opinion pieces from leading industry experts
  • Be the first to hear about our extensive events schedule and awards programmes

Join now

 

Already an Investment Week
member?

Login

Trustpilot