If there’s one thing that tends to kill off corporate activity, it’s a sense of uncertainty and the equity market volatility that can accompany it. We’ve seen that recently in the investment trust space: Numis analysts note that initial public offerings (IPOs) “dried up” in the first quarter of 2022, with not a single new trust launching. That stands in contrast to the final quarter of last year, when eight new trusts took in more than £2bn. Overall trust fundraising for the opening quarter of this year came to £2bn, according to Numis, a long way down from the £4bn taken in the first quarter of 2021 and the more than £8bn raised in the final quarter.
The recent drop isn’t so surprising, and neither is the list of trusts leading the charge on secondary fundraising in the first quarter. Renewable energy plays look interesting as power prices rise and the debate about alternatives to fossil fuels grows louder, and Renewables Infrastructure Group (TRIG), Greencoat Renewables (GRP) and SDCL Energy Efficiency Income Trust (SEIT) have all raised more than £100mn. Names seen as good inflation hedges, including property funds such as LXI REIT (LXI) and Impact Healthcare REIT (IHR), have taken in new money, as have wealth preservation trusts such as Ruffer Investment Company (RICA). We’re seeing a similar theme with some upcoming fundraising efforts, for example, infrastructure fund and inflation play International Public Partnerships (INPP) is looking to raise £250mn.
That said, some things have not quite played out as we might have expected. Cordiant Global Agricultural Income trust had teed up an IPO and appeared to be focusing on a popular area: while the trust would have focused on loans, it’s notable that vehicles focused on agriculture equities, such as iShares Agribusiness UCITS ETF (SPAG), have made big gains both this year and last.
But the Cordiant trust has pulled its IPO plans for now, citing the “current market backdrop and world events”. Interestingly, it had planned to issue some subscription shares – instruments that offer you the right to buy additional ordinary shares in the trust within a certain period. Once very popular, these can pay off handsomely if their price rises substantially. But they can also dilute existing shareholders' investments in a trust and come with big risks. A key information document for the Cordiant subscription shares gives them the highest possible risk rating, along with a stark warning about possible investment losses.
With the way things are going, rate rises and stock market volatility may mean that trusts viewed as inflation hedges continue to dominate on the fundraising front. But it’s worth noting that some interesting new trusts may be waiting in the wings. Numis analysts note that numerous potential trusts had been “test marketed” earlier this year but have paused for now, especially in areas such as growth capital.
They also highlight that various agriculture plays have been marketed, from the suspended Cordiant IPO to an “agri-tech” fund. They added that they had also heard of "early marketing of a life sciences fund and a trust seeking to provide funding to female and underrepresented entrepreneurs”. As much as markets are in flux for now, plenty of niche trusts are looking to tap up investors if conditions start to improve.
