Adviser trust purchases soar to record highs thanks to UK property and private equity demand

Investment company purchases by intermediaries and wealth managers through adviser platforms hit a record high of £514m in the first six months of 2017, according to the latest data from the Association of Investment Companies (AIC).

This is the highest figure for the first half of any year on record, representing an increase of 74% on purchases during the same period in 2016 and a 26% rise on 2015.

Platform purchases reached the second highest level on record of £264m in Q2, beaten only by £274m reached in the same period in 2015, largely due to the launch of high-profile manager Neil Woodford’s Patient Capital trust, which in turn raised a record-breaking £800m.

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Ian Sayers, chief executive of the AIC, said: “It is extremely positive to see adviser purchases at record levels in the first half of 2017.

“It is clear advisers are not only recognising the benefits of investment companies for equities, but are increasingly aware of the strength of the closed-ended structure for accessing illiquid assets.”

After the implementation of the retail distribution review in 2013, investment trust sector participants expected a boost in demand for the vehicles among advisers.

But uptake was lower than expected, with some citing their concerns about the complexity of trusts as well as the lack of access on platforms

However, the latest figures from the AIC suggest this situation may be starting to turn around.

Popular sectors

The most popular sector for sales through adviser platforms in Q2 was Global, representing 15% of purchases, followed by Property Direct – UK (13%), UK Equity Income (11%) and Private Equity (6%).

According to the AIC, interest in Property Direct – UK jumped following the EU referendum last year, after a raft of high-profile open-ended funds temporarily suspended trading.

There was some knock-on effect on the investment trust universe, with a number of vehicles swinging to wide discounts, but this was short-lived and the sector has since grown in popularity.

Laith Khalaf, senior analyst at Hargreaves Lansdown, commented: “Investment trusts can be particularly useful for gaining access to illiquid assets, for instance commercial property, an asset class where the open-ended funds market experienced significant trading problems in the wake of the EU referendum result.

“An investment trust structure only partly mitigates the issues experienced in this sector.

“However, because the secondary market in investment trust shares provides investors with liquidity that some open-ended funds cannot deliver in periods of stress, there is still usually a price for that liquidity in the form of a widening discount.

“With no outflows to worry about, managers can get on with their job without looking over their shoulder, and do not have to carry a high cash weighting to meet withdrawals in the event of an exodus from the sector.”

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