Soaring demand for green infrastructure investments has helped fuel a series of record fundraisers for UK investment trusts, with managers shattering the previous annual record of fundraising in the first nine months of 2021.
UK investment funds have raised £ 8.7bn in secondary fundraising so far this year, according to the Association of Investment Companies (AIC), already surpassing the previous record of £ 7.4bn 12-month sterling established in 2019.
Trusts investing in renewable energy infrastructure, from wind farms to biogas and batteries, generated the most cash, with more than £ 1.7bn raised, followed by other infrastructure-focused vehicles to £ 988 million.
While fundraising often involves institutional investors and wealth managers, there has also been an increase in direct participation from individuals, with trusts opening up their offerings to ordinary investors.
The rapid pace of fundraising highlights the strong appetite for green-tinged investments and how investment trusts have grown in popularity as a vehicle for investing in alternative assets. Income-conscious investors are also drawn to the attractive returns offered in the sector, managers said.
Melissa Gallagher, co-head of investment trusts at BlackRock, said the fundraiser of the year “followed a ‘barbell’ approach,” with demand going to trusts with returns above 4% or more. those who invest in growth-oriented stocks.
She said the large increases for renewables and infrastructure partly reflected the “attractive returns” offered by trusts investing directly in these projects.
The largest fundraiser for renewable energy, Renewables Infrastructure Group, for example, has invested in more than 80 projects, including wind farms, solar panels and battery installations.
Investment funds, a category of UK investment vehicles structured like listed companies, have proven to be useful for investors looking to tap long-term assets such as infrastructure.
The structure allows investors to enter or exit their positions in the trust through the stock market while the trust company holds the underlying assets for the longer term. In contrast, mutual funds typically have to buy and sell underlying assets to facilitate investor entry and exit into the fund, a setup that makes it more difficult to support long-lasting projects such as battery storage, renewable energy production or energy efficient infrastructure.
Richard Stone, CEO of AIC, said investment firms “continue to provide investors with a proven way to gain exposure to less liquid assets.”
Other illiquid asset classes have proven popular for fundraising this year, with real estate trusts raising over £ 1 billion, while vehicles that invest in start-ups and private companies have also generated cash.
“With the growing trend for companies to stay private longer, it is likely that there will be a continued demand for these types of investment trusts,” said Gallagher. “Since it is very unlikely that they will be able to invest directly in these companies, one of the best ways to access these illiquid assets is through investment trusts.”
The biggest fundraiser to date has been Baillie Gifford’s Schiehallion trust, which invests in high-growth companies before they go public. The trust, which owns stakes in TikTok’s parent company ByteDance and payment processor Stripe, has raised £ 503million in fresh cash.
“We have seen alternatives become a significantly larger part of the investment trust industry as investors seek diversification of assets and income,” said Simon Crinage, head of investment trusts at JPMorgan.
The fundraising tally does not include the initial public offerings for the new trusts, which have brought in an additional £ 2 billion so far this year.
The numbers will be good news for the UK government, which is trying to encourage investors to support longer-term environmental projects as part of its Covid-19 green stimulus program. Investment in renewable energy trusts has risen sharply in recent years as the government ramped up its green plans.
Prime Minister Boris Johnson and Chancellor Rishi Sunak in August urged institutional fund managers to support an “investment big bang” to support UK assets, including infrastructure. Some investors, however, were reluctant to answer the call given the risks and higher costs associated with supporting multi-year construction projects.
Investors have also shown that there are limits to the demand for ESG opportunities in investment trusts. Liontrust withdrew in July from an IPO for a sustainable investment trust after failing to raise its minimum target of £ 100million.