A decision from Tellworth to abandon its British Recovery & Growth Trust IPO has not been a cause for surprise for investors given the difficult market backdrop and competition from Sanford Deland and Schroders.
The Tellworth British Recovery & Growth Trust was targeting £100m to back British companies as they navigate Brexit and Covid with the flexibility to go up to £500m.
But in a regulatory filing on Thursday morning, the investment trust said it would not be proceeding with IPO at the current time. It said it the proposition and team had been “very well received” by DFMs and advisers but the overall level of demand remained too low to meet the minimum fund size.
The announcement comes a day after Merian Chrysalis revealed it had raised £95m in a placing, while the Buffettology Smaller Companies investment trust, being launched by Sanford Deland, is currently seeking £100m for IPO and Schroder British Opportunities is targeting £250m.
In the alternatives space, the Home Reit, which aims to provide affordable housing for people who are homeless, announced today it had raised £250m.
Risk of getting trapped in investment trust with limited demand
Tilney managing director Jason Hollands said Covid, post-Brexit trade talks and UK market performance made for a challenging backdrop.
Despite UK equities currently being out of favour, the trust had marketed itself as a champion of British business with a press release announcing the IPO stating the company would “support UK businesses with equity, support UK employers and promote UK technology and innovation”.
See also: Spate of contrarian investment trust IPOs after coronavirus drought stuns investors
“Institutional and discretionary investors are likely to be wary of backing a launch only to find themselves with an illiquid holding if there hasn’t been sufficient demand from other investors and so the challenge with any investment company launch is to get a critical mass that will convince additional investors to come in,” Hollands said.
Fairview Investing consultant Ben Yearsley said he was unfortunately not surprised Tellworth had failed to get off the ground.
“I’m sure they’ll come back at some point. Obviously all the documents have been paid for, it’s just waiting for the right timing,” Yearsley said.
Buffettology and Schroders should have better brand recognition
The Buffettology Smaller Companies and Schroder British Opportunities investment trusts could be beneficiaries if investors switch over money they would have otherwise allocated to Tellworth, said Yearsley.
“Schroders is obviously the biggest name but Buffettology’s got a billion pound fund and a good strong following. Both of them are arguably more well known names. Paul Marriage is obviously well regarded as an investor but Tellworth isn’t that well known, whereas Buffettology, certainly in the D2C space, is.”
The TM Tellworth UK Smaller Companies fund launched in November 2018 and has assets of £284.2m, while the SDL UK Buffettology fund launched in 2011 and has assets totalling £1.4bn.
Home Reit appeals to income investors and charities
Outside UK equities, the Home Reit announced on Thursday morning it had raised £240.6m in its IPO, which had been targeting £250m.
Home Reit chairwoman Lynne Fennah noted this made the IPO the largest in the year to date, albeit against one single launch, the Nippon Active Value trust, which raised £103m in February. It is also the largest UK focused Reit IPO in three years.
“I think anything income related is probably going to get away because people need income,” said Yearsley.
The Home Reit is aiming to deliver a yield of 5.5% and total return of 7.5% by providing inflation-linked long leases to charities, housing associations and other regulated organisations that have a track record providing low-cost accommodation to people who have been homeless. It will be managed by Alvarium Fund Managers.
Hollands added that the Reit would have had appealed to socially responsible investors and charity portfolios as well as investors wanting to minimise exposure to economic uncertainty.
By Jessica Tasman-Jones, 8 Oct 20