Zeros return to vogue in 2009

After a slow start to 2009 due to market volatility and the pervasiveness of the credit crunch, confidence returned to the investment company sector in the second half of the year, which was characterised by a flurry of fund raising activity, including the return to vogue of zero dividend preference shares.

The year has also seen a pick-up in policy changes and management changes according to research published by the Association of Investment Companies (AIC).

Fund raising

Fund raising returned to the sector in earnest in the second half of 2009, with the sector raising in total some £1.9bn to date in 2009.  There were two new launches, namely BlackRock Hedge Selector, which raised £49m in September and Impax Asian Environmental Markets, which raised £105m in October.

2009 also saw something of a renaissance for zero dividend  preference shares (zeros), with five investment companies raising money through zeros.  These tended to be in the more specialist sectors.  In July, Ecofin Water & Power Opportunities, a Sector Specialist: Utilities investment company, raised £140m, with £60m of this through zero shares.  A further four investment companies, all in the Private Equity sector, raised funds through the issue of zero shares.  In June, JZ Capital Partners raised £10m through the issue of zeros.  In August, Electra Private Equity raised £43m through the issue of zeros, in November JPMorgan Private Equity raised £30m through the issue of zero shares, and in December F&C Private Equity also raised £30million through the issue of zeros.

Policy changes and management group changes

Some 10 investment companies broadened their investment remit in 2009 (compared to just 6 in 2008), illustrating the role of the independent Board in ensuring investment companies continue to maintain their relevance and potential.   The sector also saw an increase in management group changes, with 9 management group changes in the sector in 2009 compared to just 3 for the whole of 2008.

Annabel Brodie-Smith, Communications Director, Association of Investment Companies (AIC) said: "Given the volatility that marked the beginning of 2009, it's encouraging to see the investment company sector up 28% over the last year, whilst the sector also saw discounts narrowing from 17% at the end of last year to 12% at the end of November.  Of course 2009 will be remembered as the year that saw a return of issues of zero dividend preference shares.  Whilst it's too early to be sure if zeros will continue to be a theme in 2010, it seems likely they will as nearly three quarters of fund managers think investment companies will continue to issue zeros next year to overcome credit constraints.

"It's also interesting to see a flurry of policy changes this year, which are some way up on 2008.  Boards are clearly responding to changing circumstances to ensure that investment companies can maintain their competitive edge.  There have also been a number of manager changes - something that is unique to the investment company sector.  It's been an eventful year, and it will be interesting to see if the pick up in fundraising characterised by the second half of the year, continues into 2010."