Listed private capital funds may benefit from the Mansion House Accord that was signed by major pension funds last week, says Stifel.
But analyst Iain Scouller said this will only happen if pension fund bosses eventually notice that such London-listed investment trusts exist – which would be good for everyone, as they’re cheap, liquid and not entirely terrible.
"There has been a supply-demand imbalance in the listed private capital sectors," the Scouller said, which has been a "key factor" in the wide discounts many funds are trading on.
Infrastructure, renewables and private equity funds in the listed space are mostly trading at 30-40% discounts to their net asset values. And these are not piddling concerns, with gross assets of the three listed sectors at almost £20 billion for renewable energy and just over £16 billion for both infrastructure and listed private equity excluding 3i Group.
Even some modest inflows from new pension fund buyers could provide helpful demand, Scouller said.
Under the Mansion House accord, 17 major UK workplace pension providers, managing 90% of defined contribution pensions, including Aviva PLC (LSE:AV.), Legal & General Group PLC (LSE:LGEN) and M&G PLC (LSE:MNG), recently pledged to allocate 10% of portfolios to private assets by 2030.
Scouller wonders whether "all of the signatories are fully aware" of investment trusts as an option for their 10% allocations, particularly given the “conspicuous absence” of these names from the shareholder registers. In fact, the only pension fund that appears to have any declarable or sizeable investment in listed infrastructure or renewables is Yorkshire Pension Fund, with 4.4% in GCP Infrastructure Investments.
The analyst suggests that listed funds may in fact be better suited to DC schemes than they appear at first glance, offering daily stock market liquidity, low ongoing charges and independent boards.
Plus, investing in the trusts when they're trading at discounts should help juice returns.
Volatility in their share prices is acknowledged as a "key disadvantage" of the listed model and pension funds are more comfortable with LP funds that publish NAVs and are ‘priced’ on a quarterly basis with no discount/premium volatility, said Scouller.
"However, we think long-term investors should be able to look-through daily price moves and consider the potential returns that could be generated by these funds to investors either over a ten-to-twenty-year time horizon or over the fund’s natural life," ie the period the portfolio is generating cashflows and paying sizeable dividends..
If the pensions industry is serious about funding infrastructure, clean energy and private markets, Scouller called on the investment company industry to start highlighting the merits to their pension fund cousins.