Like the lager that “reaches the parts other beers cannot”, investment trusts remain the vehicle of choice for wealth managers wanting to tap into private markets.
Wide discounts and a long track record make them hard to ignore, even as newer structures try to muscle in.
Fresh research from Research in Finance, covering 157 discretionary fund managers (DFMs), shows that 91% would use investment trusts to gain exposure to private assets such as infrastructure or private equity.
By contrast, only 23% would turn to semi-liquid funds such as the Long-Term Asset Fund, and just 14% would opt for illiquid partnerships.
Discounts are the main draw. Among DFMs planning to increase their use of trusts, 68% cited the ability to buy in at a discount to net asset value.
A further 51% liked the access to specialist assets, while 39% pointed to strong performance in certain trusts. Others mentioned gearing and the chance to take advantage of volatility.
One respondent summed it up neatly: “We look to use investment trusts to provide diversification. It also allows us to provide access into specialist markets like property.”
For now, most managers plan to keep allocations steady, but more than a quarter expect to add to their trust holdings over the next six months.
Nick Britton at the Association of Investment Companies says trusts have “retained their role as the Heineken of investment vehicles, reaching parts of the market that aren’t easy to access in other ways.
"Wealth managers like the way they provide flexible and convenient exposure to private markets and more specialist equities, and these attractions are enhanced by wide discounts.”
By contrast, semi-liquid funds usually price close to net asset value and come with lock-in periods or redemption limits. That mix appears to appeal more to institutional investors than wealth managers.
As Oliver Crawford of Research in Finance points out, investment trusts have been part of the UK market for over a century. They also offer daily dealing, which wealth managers still prize when weighing up how best to get into private markets.