How London’s oldest market is pioneering new investment opportunities
Investors from around the world have long trusted the trading environment in London – and for more than 150 years they have been investing in London’s investment funds.
“Investment funds are one of the longest running parts of the London market,” says Dr Darko Hajdukovic, Head of Multi Asset, Primary Markets and Investment Funds at London Stock Exchange. A remarkable number of these funds have demonstrated great resilience and adaptability. There are 23 investment companies with track records lasting more than 100 years. “They have been through everything,” says Dr Hajdukovic. “They have seen through two world wars, the Great Depression in the 1930s, oil crises and financial crises.” And here’s the important point: throughout these times, they have consistently paid out dividends and provided growth opportunities.
The first investment trust was created in 1868, when the Foreign & Colonial (F&C) Investment Trust was launched to ‘bring stock market investing to those of moderate means. Despite its rich and colourful heritage, “this is a dynamic market that consistently reinvents itself and seeks new asset classes,” says Dr Hajdukovic.
The closed structure of the investment funds gives them flexibility to deploy their capital by investing in private companies before they come to the public market. For example, some funds took early positions in Tencent and Alibaba and were early investors in Amazon and Facebook.
Today, new and alternative asset classes dominate new fund launches, supporting investment into potential growth areas. Over the past five years, nearly 60% of the capital raised by investment funds have been focused on alternative, illiquid assets. Recent new funds have focused on areas such as aircraft leasing, renewable infrastructure, energy storage, music and pharmaceutical royalties and fintech.
London is a leading market for investment funds. Many world-renowned managers have listed funds in London. The market provides Asian investors with a wealth of choice. More than 450 investment funds are listed on London Stock Exchange with a combined value of over $180bn. They cover more than 80 subsectors with exposure across geographies and asset classes – from infrastructure and property to hedge funds and debt. Nearly one in five (19%) either have a global or an Asia Pacific focus.
“For Asian investors seeking diversification and yield, London’s funds market provides a vast choice of investment strategies within a reassuringly robust and stable structure,” says Dr Hajdukovic. Given its accumulated centuries of experience, it is not surprising that London has a thriving and developed ecosystem of specialist brokers, investors and fund administrators that supports the market system.
The structure of an investment company could help offering investors valuable protections when markets are volatile. As an investment trust, assets under management do not rise and fall in line with customer demand. Fund managers do not have to meet redemptions on a daily basis, as shares in the funds can only be bought and sold on a quoted exchange. Market maker support of listed funds provides intraday liquidity.
Also, investment companies are uniquely allowed to reserve 15% of income in revenue reserves, retaining some of the dividend income they earn on their investments. These funds, where available, could then be used to support dividends to their own shareholders in years when income is in short supply.
The investment fund market maintains a pioneering spirit, enabling Asian investors to access opportunities around the world in new sectors and markets while also delivering reliable dividends for those who seek non-correlated income opportunities.