The Monthly: February 2021

05 Feb 2021 / Corporate research

Feature article:

Investment Companies

Right back where we started from[1]  ‒ retail influence and specialist fund managers?


By Hardman & Co in collaboration with Argus Vickers


  • This is a condensed version of a paper to be published shortly by Hardman & Co.
  • We believe this is the first paper to analyse ownership of Investment Company (IC) sectors by type of investor. It has been written in collaboration with Argus Vickers.
  • ICs were originally created in the 19th century as a vehicle for wealthy private investors and those who wanted to utilise the skills of a specialist in the asset class.
  • They increasingly fell out of favour in the middle of the 20th century, as retail investors flocked to mutual funds, institutions took specialisation in-house and ICs came to be viewed as old-fashioned with weak governance.
  • ICs are back in fashion, partly following recent difficulties relating to illiquidity and suspension of dealing by some mutual funds.
  • All ICs offer investors the benefit of pooling risk and diversification for a small investment, while “alternatives” can have additional advantages, such as creating liquidity in illiquid assets and providing exposure to asset classes investors wouldn’t otherwise be able to access.
  • Strangely, these attributes were precisely why investors clubbed together in the 19th century to form investment trusts, as ICs used to be called. In fact, you could say we are Right back where we started from.
  • At the end of 2019, the combined market capitalisation of all ICs was more than £170bn. If we exclude the “Unknown Unknowns”, 52% of the shares were owned by institutions, and 44.7% by retail investors, according to our definitions. In “traditional” ICs, which invest in quoted securities, retail accounted for nearly 60%, while they owned just under 20% of “alternatives”, which focus on unquoted investments; we expect retail to take an increasingly larger share of alternatives as the attractions of the yields and covenants become better known.
  • Retail ownership varies dramatically by AIC (Association of Investment Companies) sector.
  • We are likely to see greater interest in ICs from retail in the future, reflecting dramatic growth in SIPPs, declining final salary scheme provision and the availability of better investment tools for retail. At end-2019, platforms had assets of £713bn, with a potential to grow to £5,306bn[2]. ICs are a perfect way for SIPPs to get diversification for a low fee.
  • Addressing the new audiences for ICs, such as retail, wealth managers and family offices, requires different channels and approaches than those used for institutional.
  • A full methodology will be published in the full version of this paper


[1] Right back where we started from, originally recorded by Maxine Nightingale, released 1975

[2] Platform potential: How big is the potential investment platform market in the UK?, Hardman & Co, May 2020

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