To boost economic growth, drive net zero and accomplish other national goals, the UK government should think about launching targeted investment companies on the London Stock Exchange.
This is the basis of a proposal from the Association of Investment Companies (AIC) in a paper titled ‘Making people better off’, which suggests that 'partnership funds' could help achieve various economic goals, including boosting regional economic growth and the advancement of new technologies.
With Chancellor Rachel Reeves and Prime Minister Kier Starmer having said they want to attract private investment to help achieve growth, the AIC pointed out that listed investment companies can invest in assets such as infrastructure projects, renewable energy generation, real estate and private companies.
This is something that investment trusts have been doing since they were first launched during the reign of Queen Victoria, when they were used to raise money for railway building.
The new £7.3 billion National Wealth Fund proposed by Reeves in July would be an ideal cornerstone investor in these funds, said the AIC, which represents the investment trust industry.
If funds with these national aims are listed on the London Stock Exchange, it would allow participation by the public and institutional investors, including pension schemes.
The example of Scottish Mortgage Investment Trust PLC (LSE:SMT) and F&C Investment Trust PLC (LSE:FCIT) were given, which both offer low-cost exposure to a wide range of public and private companies, are highly liquid and have provided gains for investors over several decades, while Abrdn UK Smaller Companies and Polar Capital Technology Trust PLC (LSE:PCT) offer more focused investments.
“Investment companies provide a tried-and-tested way of overcoming the practical challenges of investing in infrastructure and new technologies,” said Richard Stone, AIC chief executive.
“Their permanent capital structure removes the need to redeem investors’ units when they want to sell and therefore facilitates stable, long-term decision-making.
“As well as offering permanent capital, investment companies have independent governance and offer liquidity through the stock market – a combination of features that could be attractive to pension funds, other institutions and the general public, as well as to the government.”
The AIC also put forward several policy recommendations, including abolishing stamp duty on investment company shares and creating a regulatory environment that fosters transparency and investment in scaling up companies.