Trusts keep the Heineken crown as wealth managers chase discounts

A recent Research in Finance survey of 157 discretionary fund managers (DFMs) indicates that investment trusts remain the overwhelmingly preferred vehicle for private market exposure, with 91% opting for them over semi-liquid or illiquid funds. This preference is primarily driven by the ability to acquire assets at a discount to net asset value (cited by 68% of DFMs), alongside access to specialist assets, strong performance, and daily liquidity, distinguishing them from newer structures that typically price closer to NAV and have redemption restrictions. Over a quarter of managers anticipate increasing their trust holdings, signaling sustained demand for these vehicles due to their unique advantages in diversification and specialist market access.

Analysis

A recent survey of 157 discretionary fund managers (DFMs) by Research in Finance confirms the continued dominance of investment trusts as the preferred vehicle for private market exposure. An overwhelming 91% of DFMs utilize trusts for access to assets like infrastructure and private equity, compared to just 23% for semi-liquid funds and 14% for illiquid partnerships. The primary driver for this preference is the ability to acquire assets at a discount to net asset value (NAV), a factor cited by 68% of managers planning to increase their allocations. Other key attractions include access to specialist assets (51%) and a track record of strong performance (39%). The structure's advantages are further underscored by its daily liquidity and long history, which contrasts sharply with newer semi-liquid alternatives that typically price close to NAV and impose redemption limits. With over a quarter of surveyed DFMs expecting to increase their holdings in trusts over the next six months, the data signals sustained and potentially growing capital flows into these vehicles, reinforcing their strategic role in providing liquid, diversified access to otherwise hard-to-reach market segments.

Key Decisions for Investors

• Investors should consider screening the investment trust sector for opportunities where wide discounts to NAV are present, particularly in trusts focused on in-demand private assets, to capitalize on the primary value proposition attracting wealth managers.
• Given that over a quarter of discretionary fund managers plan to increase their holdings, monitoring fund flows into the sector is crucial, as this anticipated demand could lead to a narrowing of NAV discounts and present a tactical opportunity.
• Evaluate the relative merits of investment trusts versus semi-liquid funds for private market allocation, weighing the potential for discount capture and daily liquidity in trusts against the redemption restrictions and near-NAV pricing of alternative structures.