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Investment Trust Insider: The best new trusts in the class of 2012
by James Carthew on Feb 12, 2013 at 00:01
This week I thought I might look at some of the recent new issues in the sector. The 2012 vintage are an eclectic bunch. I have identified nine (a hedge fund, a property fund, two debt, two insurance, one multi-asset, an emerging market and a resources fund), though I am prepared to admit I might have missed one or two, and that list excludes some significant secondary issues such as Better Capital 2012 and the C share for Doric Nimrod 2.
The largest new issue was Starwood European Real Estate Finance, which raised £228.5 million in December. The concept behind the fund is fairly straightforward – banks in Europe are awash with real estate debt and they need to reduce their exposure. Property owners will need to refinance and Starwood will be there to fill the gap.
The portfolio will be split roughly 45:40 senior and subordinated loans with the balance a mixture of bridging loans and development finance. It aims to be fully invested by the end of this year and is targeting a 7% dividend in year two.
It will be interesting to see how it is doing then but I expect they will try to expand the fund this year, if conditions permit. As an aside, the headline fee of 0.75% on net assets and the performance fee (described as carried interest) at 20% on returns over 8% per annum seems reasonable.
However, the managers also get an origination fee of 0.75% of all new investments made by the company, which seems to encourage the managers to churn the fund. And, while the fund will not normally be geared, it is allowed to securitise its investments, selling on the senior debt. This would boost the headline turnover on the fund and the origination fee income for the manager.
The second largest issue of 2012 was Battle Against Cancer Investment Trust (Bacit). Launching a fund with minimal running costs, a very broad investment mandate and annual donations of 1% of net asset value (NAV) to good causes was a great idea.
It had been tried before, with an open-ended fund designed to benefit the Prince’s Trust (Invest & Give) but that failed to attract enough money to make it viable. I wonder whether it might have worked better as an investment company?
Other investment companies make charitable donations but these tend to be modest (which I agree with – Bacit’s annual donations are an explicit upfront ‘cost’, other funds should aim to make as much money as possible for investors and allow them to make the charitable donation).
For me, the interesting aspect to Bacit is its investment strategy. Bacit is a multi-asset fund of funds and is trying to generate 10%-15% per annum returns from a mixture of listed equity, hedge, real estate and private equity – just about anything, in fact, with the exception of the tobacco industry.
In keeping with its mandate, it will also invest around 1% per annum in cancer research. The initial portfolio includes many names familiar to investors in investment companies: BlackRock, CG Asset Management, Baker Steel, Genesis, Prosperity and Permira.
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