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Two UK-listed investment companies have announced their intention to merge, creating one of the largest domestic investment trusts with assets of £5bn.
The merger of Alliance Trust and smaller rival Witan Investment Trust is the latest in a slew of consolidations among investment trusts, which are struggling with a slump in investor interest because of the proliferation of alternative options that allow access to a range of global assets and the increased attractiveness of cash products as interest rates have risen.
Dean Buckley, chair of Alliance Trust, said the merger was a “key milestone” for the industry and would result in lower management fees and other charges for investors. The new company, Alliance Witan, will target an ongoing charge “in the high 50s [basis points]”, compared with Witan’s 76bp and Alliance Trust’s 62bp at present.
Alliance Trust said on Wednesday that Witan shareholders who roll over into the enlarged trust would benefit because Alliance Trust shares trade at a smaller discount to net asset value.
Over the past seven years to March, Alliance Trust has posted a net asset value total return of 104.2 per cent, compared with 95.7 per cent for the MSCI All Country World index. Witan has returned 143.7 per cent over the past 10 years, compared with its benchmark, which returned 158.9 per cent.
Willis Towers Watson, the investment manager of Alliance Trust, will make a “significant” contribution of £7.4mn to help absorb the transaction costs, according to Alliance Trust. Four of Witan’s board will initially join the board of Alliance Witan.
The deal, which is expected to be completed in early October, originated in March when Witan’s chief executive Andrew Bell announced his intention to retire.
Both trusts employ a multi-manager approach, allocating funds to selected managers with different styles.
Investors’ move away from trusts has led to rising share price discounts to net asset value, with the average discount at 15 per cent this month, according to the Association of Investment Companies.
These discounts have prompted a response from the industry. Many trusts have consolidated, including Fidelity and Abrdn’s £1.2bn China trust merger, while the UK’s biggest investment trust, Scottish Mortgage, announced a £1bn share buyback earlier this year in an attempt to support its share price. Hedge funds have also taken an interest in the sector.
Some fund managers also blame regulatory changes for affecting demand. In 2022, the way investment trust fees were presented to some investors was changed, in response to new guidance on rules originally introduced in 2018. Critics say the UK’s interpretation of the rules — which also cover EU funds — means the country’s trust fees are made to look higher than they are.
