18th July 2025
Chancellor Rachel Reeves delivered her Mansion House speech this week. Others have written far more edifying commentary than we could ever muster, and so we limit ourselves to making one very simple point.
Reeves has allowed LTAFs (long-term asset funds) to be allowable in Stocks & Shares ISAs. We have written plenty on the democratisation of private assets and especially on the strengths and weaknesses of the LTAF relative to the investment trust. We won’t repeat those points here.
But we can’t help but make a very simple observation. Before a retail investor considers an LTAF, at current prevailing discounts, they would be remiss not to first consider investing in an investment trust. Private equity trusts are still trading at between 30 and 40% discounts. Infrastructure and renewable energy trusts are trading at between 15% and 40% discounts. The rapidly dwindling investment trust REIT market is still home to deeply discounted portfolios of property.
And the managers of these trusts are very high quality. The track records of the private equity trusts make a mockery of some of the (frankly childish) commentary in the financial press about the asset class only generating superior returns due to leverage and fees being too high. It reminds us of the facile commentary we often read about active vs passive funds. As ever, there are nuances to the debate. Yes, there are bad actors – and perhaps they are more numerous within the PE sector than other parts of financial markets, lending credence to some of the negative arguments that use aggregate level data. But in the listed private equity investment trust space, we are blessed with a range of excellent managers, across a broad range of private equity types. Venture, buy-out, mid-market, regional specialists, sector specialists, direct, fund-of-funds…. All with excellent track records. A long period of Darwinism has long got rid of the weaker managers.
Within infrastructure and renewable energy, some of the UK’s finest assets are held within investment trusts, offering diversification to equity and bond market risk. Exposure to such assets is hard to easily replicate from scratch. Good infrastructure is scarce, and new projects take years before they are fully operational.
Yes, the investment trust is not a perfect vehicle: over short-term periods, their share prices can correlate with equities (especially during crises) but over the medium term, the portfolio performance provides an anchor.
And as we have written many times, the availability of much of the investment trust universe at such wide discounts (albeit narrower today than a few weeks ago) is a function of non-fundamental factors. With improving attitudes at Board-level, more engaged shareholders on registers and (just maybe) cost disclosure reform on the horizon, the likelihood of discounts narrowing further is high. Indeed, we note that the technical picture for the sector is better today than it has been for some time.
The fact that LTAFs must maintain liquidity buffers of c. 20% means that the investment pound only buys c. 80 pence of private asset exposure. With the discounts prevalent in the investment trust space, that same pound buys you at least £1.25 or more of assets (and far more once we consider the use of gearing: gross assets being higher than net assets).
So, this week’s Crescendo transmits a simple message: at current prices, it’s a no-brainer. Investment trusts are cracking value relative to LTAFs (even if retail platforms would host them)…. Could someone please tell the Chancellor?!
Ben Conway – Head of Fund Management
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