The outdated post-Brexit regulation around investment trust cost disclosure set the UK back by three years on infrastructure, asset manager Abrdn has revealed.
Cost disclosure rules, which required investment trusts to ‘double dip’ their fee reporting, have finally been lifted by the government and the Financial Conduct Authority today, leaving the trust industry overjoyed.
“What’s happened today is a lot less dramatic than the big bang in the 80s, but for those of us in the sector and all Investment Company investors, it is no less seismic,” said Gravis’ William MacLeod.
The bitter pill the industry had to swallow, which first came into place following the UK’s exit from the European Union, has hampered the ability for trusts to invest in vital areas of the economy.
Research from Abrdn today revealed that trusts are currently on track for their first ever three-year gap with no primary capital raised.
“These funds already invest billions into these areas – delivering crucial economic growth projects,” explained Christian Pittard, head of closed-end funds at Abrdn.
“However, cost disclosure rules, which have amounted to a distortive “double counting” of costs, have negatively impacted investor sentiment, therefore choking flows into investment trusts.
“They have been a key cause of these three lost years of infrastructure investment.”
Over the past 18 years since the first infrastructure trust launch, there has only ever been two years in a row with no IPOs, which coincided with the Global Financial Crisis.
Meanwhile, the secondary market has been similarly poor, with only £11m in capital raised from infrastructure trusts this year, setting it on track for its worst year by far.
This is only 10 per cent of the £121m raised in 2009, the previous lowest year on record, and would only cover half of Edinburgh City Council’s budget for roads and infrastructure.
Abrdn is the third largest manager of investment trusts globally, controlling 32 different trusts with £23bn in assets under management.
“The new government has made boosting economic growth – by channelling capital into areas like renewable energy and infrastructure– its raison d’etre,” added Pittard.