New trusts struggling as investors remain cautious

Just one closed-ended fund has been successfully launched so far this year, according to Wins Research – an indication that primary listings of investment trusts into the British market have ground to a halt in 2009.

This contrasts with February 2008, when flows into closed-ended funds reached £420m, much of it going into the now out-of-favour fund of hedge funds sector.

The figure fell to £175m in February this year, £171m of which is going towards a single rights issue, illustrating the severity of the situation facing the industry.

The single fund launched this year was Harewood Enhanced Income, which entered the market in February.

James Brown, an investment trust analyst at Wins Research, says that the market ­has dried up and is unlikely to recover while investor sentiment remains poor.

“I think people have just been consolidating what they’ve got and there are plenty of people who just don’t have the money at the moment,” he says.

Continuing investor caution has led to many abortive attempts to bring new funds to market. Jupiter announced in March that it was putting the launch of the Jupiter China Sustainable Growth company on hold after it failed to raise $50m (£34.8m) – the board’s minimum fund­raising target.

On March 11, the group announced that it was extending the deadline for subscriptions to the trust, to allow investors to participate in the launch who would otherwise have been unable to do so.

“We are encouraged by the high level of interest this launch has received from investors,” said Richard Pavry, Jupiter’s head of investment trusts, in a statement. “However, we have been asked by a number of key potential investors for an extension to the deadline in order to enable them to participate and we are happy to do so.”

Despite the extension, the fund failed to raise the minimum amount it required, preventing it from listing as planned on March 20. The failure to raise funds was suggestive of the fact that investors were signalling interest but they are not yet prepared to risk further exposure to volatile markets.

Other fund launches that failed to gain traction include Schroder Agricultural Land Trust, which was scheduled to launch in the third quarter of last year, Akarui Credit Opportunities and Liberum Capital, which also postponed a listing.

Even the Harewood fund – which was launched successfully, collateralised with AAA-rated G7 government bonds – did so at a modest £25m. Although this was comfortably above the £20m minimum that the group required for the product, it is still relatively modest compared with last year’s fund flows.

The problem appears to be that, while investors are prepared to express their interest in particular investment strategies, they are unwilling to back that interest up with the necessary capital.