Abrdn’s Asia Dragon trust completed the transfer of its assets into Invesco Asia on Friday, with the two portfolios merging to create a new trust with £800m in assets under management (AUM).
The newly-named Invesco Asia Dragon trust launched on the FTSE 250, giving the trust greater scale and liquidity.
Before the merger, Invesco Asia’s AUM stood at £215m, which was a barrier for some wealth managers, according to chairman Neil Rogan.
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“Wealth managers liked us and we had buy ratings, but they would sometimes say, ‘as much as we like you, you’re not big enough’. They couldn’t buy more than a certain percentage of us, so we’ve been looking for more scale to satisfy that, because we knew there was demand out there,” he said.
“Once we saw that Asia Dragon had announced their strategic review, that fit what we were looking for so we threw our hats in the ring.”
The board also sought to ease wealth managers’ concerns around liquidity by offering shareholders the chance to sell their shares at a 4% discount every three years.
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Rogan added: “One of the reasons we hear from wealth managers why they don’t like investment trusts is there’s no certainty about how they get their money out. But if they can buy us today at an 8% discount, and they know they can sell it at 4% in three years’ time, it becomes a more attractive thing for them to do.
“For those wealth managers who have tended to favour unit trusts over investment trusts, it should help them. But the main motivation for us is that it doesn’t seem right for an investment trust discount to languish in the teens when there are ways of changing that. It’s within our power to do it, so why not do it?”
These measures have had the desired effect, with Invesco Asia’s discount falling from 14.5% before the merger was announced in October to 10.4% today.
Rogan expects other trust boards to implement their own discount-shrinking policies, especially with the added pressure from the likes of Saba Capital.
“I suspect that in the end, [Saba] is going to be a help to the industry,” Rogan added. “It’s clearly been quite painful for some of the trusts and I feel sorry for the ones that have been targeted twice – that’s bad for their shareholders because they’re having to pay the costs of dealing with it twice.
“But the net effect is that a lot of other boards have become more active doing stuff, and that’s a good thing.”