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Haig Bathgate: the obscure world of investment trust IPOs

by Haig Bathgate on Mar 28, 2014 at 10:39

I realise that even with these fees there is still considerable demand for the funds.

Those more uniform buy lists I referred to earlier mean it is nigh on impossible for a large wealth manager to enter an investment trust in the secondary market because the liquidity just is not there.

Therefore the only access point available is at the initial public offering (IPO). But just because people are willing to pay a certain amount does not necessarily make it a good idea to charge them that.

I have no problem with people and businesses getting well paid to do a good job. The brokers who oversee the IPOs have to work hard to build up a list of potential investors and organise the marketing of these investments.

List of objections

So what are my objections?

First, the charges are too high and seem to be rising – I remember fund IPO charges at lower levels and some asset management companies historically covering the launch costs of new issues.

Second, the costs of marketing and selling a fund surely are fixed and not related to the amount of money that I spend on the investment.

I would prefer a flat fee that would allow the broker to make a reasonable profit after covering the expense of contacting me and dealing with my application.

Third, I am not quite sure of the service I am getting for this fee. Brokers used to hold investment trust shares on their books so as to create liquidity for a secondary market.

Following the financial crisis, they are limited in their ability to offer this facility, but fees seem to have been rising rather than falling as one would expect with a reduction in service.

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1 comment so far. Why not have your say?

Anonymous 1 needed this 'off the record'

Mar 28, 2014 at 15:36

He is spot on in all his arguments. The issue expenses should be paid for by the investment manager.. that said lots of issues are getting away and investors (mainly private client stockbrokers / discretionary managers) seem happy to pay the fees... history tells us that no fund stays at a premium.. maybe the infrastructure funds will prove its "different this time".

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