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Convertible issuance set to grow in investment trust space, says Ecofin

Convertible issuances are likely to gain momentum as investment trusts look for more innovative ways of fundraising, according to privately owned investment manager Ecofin.

Speaking today at an Association of Investment Companies press briefing on defensive stocks Ecofin chairman John Murray said though there was significant demand for zero dividend preference shares, stigma around split-caps could hinder their take-up.

Ecofin manages hedge funds, long only funds and funds for sovereign wealth funds. It also manages the Ecofin water & power opportunities trust which is a quoted investment trust.

This recently raised £140m through £80m of convertible unsubordinated loan stock placed with institutional investors and £60m zero dividend preference shares.

Investment trusts can issue zeros offering investors no dividend but a guaranteed fixed level of capital growth instead of borrowing from banks.

Following this year’s Budget, industry experts predicted a boost to zeros, from investors who may look to benefit from the preferential rate of capital gains tax instead of income tax. Some suggested that investment trusts may start to issue zeros if they struggle to renew bank facilities.

But when questioned by Money Marketing whether the zero market would see more launches Murray said: “In the zero market, I would have said yes a couple of months ago but I think I’ve changed my mind. I don’t think we will see a lot.

“If you talk to the private client brokers there is huge demand for zeros but I doubt that that will be met with a huge volume of issues.”

“You’ll see that managers of businesses who aren’t able to raise equity at the price they should be able to, will resort to convertibles as a way of raising equity on a preferred basis and providing investors with a downside protection that they require in markets like these.”



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