Traditional buyers of closed-end funds will migrate away from the space to mitigate the impact of seeing their own OCRs increase
Multi-asset managers represent around 50 per cent of the shareholder registers of investment trusts.
There is a risk that the new disclosures will cause trusts to derate, new capital raises to dry up and innovative new initial public offerings will not get off the ground.
Having spoken to brokers, many investors are already disposing of trust assets in advance of the June 30 deadline.
Cut off from a flow of capital, UK PLC will suffer
Without investment via multi-asset funds, UK investment companies will not receive the flow of capital they need to support vital areas such as infrastructure and the energy transition, or growth equity and other productive finance opportunities.
Moreover, the UK could see a decline in one of its most respected financial capabilities. Trusts are one of the bright spots in the UK-listed market.
End investors, particularly those in defined contribution pension schemes, will struggle to access interesting, diversifying return streams as part of multi-asset portfolios
Multi-asset funds are a vital investment strategy for many types of investors.
The key growth area of the trust market has been in alternatives and interesting private markets or real assets.
The current macro backdrop proves how useful such investment vehicles are in a portfolio context.
At a time when more DC schemes are starting to understand the benefit of alternative asset classes, this regulatory change risks closing off a viable way for many to gain access to important diversifiers, given the 75bp charge cap.
As it stands, the structure of the disclosure for closed-end funds is simply not fit for purpose.
Including such “costs” as part of the prescribed, single Mifid ongoing cost ratio serves to confuse rather than clarify, and turbo-charges the whole issue of cost over value.
I am confident the ongoing talks between the industry and the regulator will remain productive and an alternative solution will be found, but this may take some time.
Cost transparency and cost efficiency is imperative, but it is clear these Mifid disclosure changes could affect a big part of the population, so the industry must work together to find a better solution.
James De Bunsen is the multi asset portfolio manager at Janus Henderson
