Despite several listed investment companies opting to list as active exchange traded funds (ETFs), demand for alternative assets mean there is still a place for the vehicles.
Speaking at the Morningstar Individual Investor Conference in Sydney, industry specialists debated the development and opportunities in the market and its transformation amid a period of restructuring.
Chris Meyer, director at Pinnacle Investment Management group, said the structure particularly made sense as a way for investors to access alternative assets such as real estate, credit and infrastructure.
He said: “I think the future is bright for the LIC sector, it wouldn’t appear bright right now because there hasn’t been much capital raised but capital is starting to flow again and we are seeing a structural change that is going to be very important over the next five years.
“A lot of new capital & IPOs are going to come from different areas, my personal view is that we are going to move towards private assets. Firstly, investors want and need it, their portfolios aren’t holding much in infrastructure, private equity, real estate or credit. Secondly, the LIC structure gives them access to that.
“The LIC structure is perfect for those type of assets are they are closed ended. You have an illiquid asset class in private assets, you can’t have daily redemptions, you can’t put it in an ETF so an LIC is perfect for it, it’s the holy grail.”
Ian Irvine, chief executive of the Listed Investment Companies and Trusts Association, added any IPOs planned needed to ensure they were appealing for the investor rather than just the manager.
“I get a lot of inquires [about IPOs] and my response is always ‘why would an investor want this?’. Sometimes you get a good explanation and sometimes it’s about the manager wanting to do something rather than doing the right thing by investors. Putting investors first is always important.
“From an investor perspective, it needs to make sense, to fit their diversification strategy and fit the portfolio. And things that naturally suit the closed-ended structure make a lot of sense for the future.”
