Ship shape and ready to float?

Biotech trusts top performance charts in February

Ship shape and ready to float? IPO market picks up but headwinds remain for small launches
Larger vehicles in better stead

David Brenchley, Investment Week, 26 January 2021

The 21 months to end-September had been quiet for new issuance from investment companies, with 2019 the lowest annual total (£1.4bn) raised through IPOs since 2016, and just one firm coming to market in the first nine months of last year.

However, the market burst back into life in Q4 2020, with £921m raised by seven companies on the back of rising markets buoyed by positive news on Covid vaccines.

It was the best three-month period for investment company primary fundraising since Q4 2018, when eight trusts raised £1.4bn.

That said, 2020 was equally notable for the number of trusts that failed to make it to market…

Nippon Active Value (£103m), Triple Point Energy Efficiency Infrastructure (£100m) and Ecofin US Renewables Infrastructure ($125m) all raised just half the capital they had targeted, while the Schroder BSC Social Impact Trust (SBSI) that raised £75m had to be largely underwritten by both Schroders and investment manager Big Society Capital (BSC), which own 28.6% and 29.9% of shares respectively.

Funds that had success in 2020 tended to be focused on specific, income-generating niches with less competition within the investment company sector.

Home REIT, which promises an annual dividend yield of at least 7.5% and provides accommodation to the homeless, raised £241m from a target of £250m; while Round Hill Music Royalty Fund, which buys the rights to musical compositions, raised $282m of its $375m target.

It should also be noted SBSI had targeted only £100m, as it focuses on deploying its seed capital well and delivering for initial investors, before looking to grow.

Analysts at Numis said the reopening of the IPO market was “healthy for the sector”, with head of investment company research at QuotedData James Carthew noting “buoyant markets and light at the end of the Covid tunnel” mean the market seemed “set fair” for 2021.

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