How to invest in hard-to-access investment trusts

Investment trusts are rightly trumpeted as a good way to access niche and less liquid assets, but not all of them are easy to buy. While many investment trusts trade on mainstream parts of the UK stock market, around 40 are listed on London Stock Exchange’s Specialist Fund Segment.

The Specialist Fund Segment houses niche funds that target “institutional, professional, professionally advised and knowledgeable investors”. As such, these trusts can be difficult for private investors to access because some investment platforms don't offer them while others require you to prove that you are experienced enough to hold such funds.

This is an issue some Investors’ Chronicle readers have come across, to their frustration. One reader notes that he has been unable to buy into Oakley Capital Investments (OCI), a strong performer in the private equity space, via Halifax Share Dealing. Oakley Capital Investments used to be quoted on the Aim market but has since moved to the Specialist Fund Segment. Halifax Share Dealing only offers such funds on a case by case basis.

Other less mainstream funds are listed on this segment too. More established names include BioPharma Credit (BPCR), Gresham House Energy Storage Fund (GRID) and Supermarket Income Reit (SUPR). Some more recently launched trusts, Round Hill Music Royalty Fund (RHM) Triple Point Energy Efficiency Infrastructure Company (TEEC), Cordiant Digital Infrastructure (CORD) and Digital 9 Infrastructure (DGI9), are also listed on the Specialist Fund Segment, as is Baillie Gifford-run Schiehallion Fund (MNTN), which invests in unquoted companies.

IG notes that Supermarket Income Reit, Oakley Capital Investments and Gresham House Energy Storage have been the most popular Specialist Fund Segment shares among its customers. Others include Tetragon Financial Group (TFG) and Sherborne Investors (SIGB).

A list of the funds in the Specialist Fund Segment can be downloaded from the London Stock Exchange website. These are easily found by searching for “Specialist Fund Segment list”. Confusingly, some of these funds also have share classes that trade on the main market, for example, NB Private Equity Partners (NBPE). But this makes it easier for private investors to buy them.

You may be unable to to buy trusts that are only listed on the Specialist Fund Segment or have to meet certain criteria. As the table shows, this depends on the platform or broker you use.

While they may not offer all Specialist Fund Segment names, AJ Bell, Charles Stanley, Hargreaves Lansdown, IG, interactive investor and Redmayne Bentley offer at least some of them. Some platforms seem to be especially accommodating. For example, IG notes: “Clients can buy shares in all the specialist funds. If one isn’t listed on the platform, it is likely to be because clients simply haven’t asked for it to be added.”

A Hargreaves Lansdown spokesperson says that its team assesses each trust on a case by case basis and only makes them available if they are suitable for private investors.

If you wish to buy investment trusts listed on the Specialist Fund Segment you normally have to fill out a form or questionnaire, or do a test to prove that you are sophisticated enough to buy them. Hargreaves Lansdown, for example, requires you to fill in a form that provides "information on the product type, including some of the associated risks, before testing whether the client has an appropriate level of knowledge and experience”.

Customers should also read the Key Information Documents (Kids) published by providers of trusts listed on the Specialist Fund Segment, as these may add some context about the risks of investing.

Some platforms, such as Fidelity Personal Investing, do not offer Specialist Fund Segment investment trusts at all. Elsewhere Jason Hollands, managing director at Tilney which runs Bestinvest, says that investors would be “unlikely” to be able to access Specialist Fund Segment trusts via this platform.

Users of newer platforms such as eToro and Freetrade also can't access trusts listed on the Specialist Fund Segment. Freetrade says that it has prioritised offering more mainstream investment trusts and Specialist Fund Segment trusts tend to be less appropriate for most private investors.

Some platforms do not offer Specialist Fund Segment trusts because they do not fit with their model. Vanguard’s platform, for example, only offers its own funds.

Alternatives to Specialist Fund Segment trusts

If your platform doesn't offer investment trusts listed on the Specialist Fund Segment you might be tempted to use another. Your ability to buy such trusts also often depends on you passing an assessment of your experience and awareness of risk. It may also be worth first checking whether a platform even offers the specific fund you have in mind.

Oakley Capital Investments has attracted interest due to its attractive valuation and strong performance. Schiehallion had been difficult for private investors to access but has caught attention in part because of its association with Baillie Gifford and the firm's growing interest in private companies. Platforms that offer Schiehallion include Hargreaves Lansdown and AJ Bell, but interactive investor has not yet received the regulatory form it requires to offer the fund.

If you cannot get your hands on these trusts there are plenty of alternatives. Various private equity trusts are trading at seemingly cheap levels while generating solid returns. For example, Apax Global Alpha (APAX), which we have previously highlighted as promising, recently traded at a 4.3 per cent discount to net asset value (NAV). IC Top 100 Fund HarbourVest Global Private Equity (HVPE) is more diversified than some of its sector peers, but does not seem to have sacrificed performance to achieve this. It recently traded at a 20.8 per cent discount to NAV.

While Schiehallion may be classed by some as a 'growth capital' rather than private equity fund, due to its tendency to take minority stakes in later-stage private companies, there are alternatives to it. It has some holdings, such as ByteDance and SpaceX, in common with other Baillie Gifford-managed trusts such as Scottish Mortgage Investment Trust (SMT).

Other fund providers have also successfully operated in this space. For example, Chrysalis Investments (CHRY), run by Jupiter managers Nick Williamson and Richard Watts, has done phenomenally well since listing in November 2018. It has made NAV and share price total returns of 66.7 per cent and 77.8 per cent, respectively, between launch and 29 April 2021. Its largest holdings include financial services name Embark, Graphcore, which is also held by Schiehallion, Growth Street, buy now pay later specialist Klarna and THG (THG).

Gresham House Energy Storage targets a promising part of the renewable energy infrastructure market. Gore Street Energy Storage Fund (GSF) also invests in this area and has generated good returns so far. Generalist renewable energy infrastructure funds, meanwhile, are increasingly focusing on energy storage – a subject we will be covering in a future issue.

Supermarket Income Reit is appealing for various reasons including a juicy yield and a strong element of inflation linkage. While it is fairly different to its peers thanks to a specific focus on supermarket property, there are other retail focused property funds that are not listed on the Specialist Funds Segment. Logistics play Tritax Big Box REIT (BBOX) is one example.