© UK Prime Minister
even a month. However, investment trusts can offer investors access to these hard-to-reach areas of investment markets, because their closed-ended structure means they don’t have to sell underlying investments to meet investor withdrawals. When an investor wants to get out of a closed-ended investment trust, they simply sell their shares on the market to another investor. The fund manager doesn’t have to do anything. The cost of that liquidity is reflected in the premium or discount the investment trust is trading at, which adds to the volatility of the investment. RANGE OF INVESTMENT TRUSTS There are plenty of investment trusts which offer exposure to illiquid assets, though they may not all be as UK focused as the PM and Chancellor might like. Investors are probably more
concerned with creating a diversified portfolio of good investment opportunities rather than using their money to do a bit of flag waving. Pantheon International (PIN), for example, is an investment trust which invests in a global portfolio of private equity assets, while 3i Group (III) offers exposure to private equity and infrastructure opportunities in Europe and North America. 1350 1250
3I GROUP
1150 1050 950 850
2020
2021
If it’s specifically green infrastructure you’re after, there is the renewable energy infrastructure sector to consider, containing trusts such as Greencoat UK Wind (UKW) and The Renewables Infrastructure Group (TRIG). Investors need to be
wary of hefty premiums on infrastructure trusts, which have been driven up by the low interest rate environment. To access some privatelyowned companies in a more diversified growth trust, investors could look at Scottish Mortgage Investment Trust (SMT), which has around 20% of its portfolio invested in unlisted equities. Investors can also invest in small unquoted companies through venture capital trusts or enterprise investment schemes, respectively known as VCTs and EIS. These tax wrappers offer investors exposure to small, unquoted companies with considerable tax breaks to boot. VCTs offer investors up to 30% tax relief on their initial investment, with tax-free dividends and growth. To keep the tax relief, you must hold the VCT for at least five years. EIS products also offer 30% upfront tax relief, with taxfree growth. There is also the potential to defer any previous capital gains from other assets by holding that money in an EIS product. The tax benefits of these schemes are clearly very attractive, but the investments are very high risk and so only for investors with a high tolerance for risk and loss. This really goes for illiquid assets more generally, and even for adventurous investors they should only make up a small part of a diversified portfolio. By Laith Khalaf AJ Bell Financial Analyst
12 August 2021 | SHARES |
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