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Why did Liontrust pull their ESG Investment Trust IPO?

Liontrust pulls the launch of its ESG investment trust after failing to secure the £100 million minimum investment – Laith Khalaf, financial analyst at AJ Bell, shares his analysis.

 

Liontrust ESGT was an attractive proposition, run by an established and successful team, at a time when markets are buoyant, and in an area of investment where there’s currently a lot of demand. Frankly, if this trust can’t gather enough speed for lift off, it doesn’t bode well for future investment trust launches.

The failure of this launch will naturally lead to questions about whether demand for ESG products is petering out. But so far, industry figures don’t support that hypothesis. Latest figures from the Investment Association show that responsible funds took in £1.3 billion of fresh investment in May. That compares with £0.9 billion in May of 2020, which itself was a record-breaking year for responsible fund sales.

It’s possible that after six months of rising markets, investors are as fully invested as they want to be, and don’t wish to allocate any more money to equities after such a strong run. But there is probably a greater structural issue around investment trust launches which can undermine demand and may also help to explain the trusts that failed to IPO last year too.

Indeed, Liontrust CEO Jon Ions refers to “challenging market conditions for fundraising for investment trusts” and suggests there was plenty of interest in buying ESGT after launch, but not before. This reflects the fact that there are already plenty of global investment trusts on the market, some of them in the ESG space, which are currently trading at a discount. For instance, Keystone Positive Change, now run by Baillie Gifford, is trading on a 3% discount, while Jupiter Green trust is trading on an 8% discount.

Investors may therefore be waiting in the wings for investment trusts to launch on the market, and potentially move to a discount, before buying in at a lower price. This issue is compounded by the fact that the costs of setting up investment trusts, normally in the region of 2%, are generally paid as part of the IPO, giving investors another reason to wait it out.

Of course, it’s possible that an investment trust moves to a premium when it launches on the market, which would mean IPO investors get a headstart on the rest of the pack. However, it seems such confidence is simply too great a leap of faith for investors at the moment.”

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