M&G announced on Friday it had raised £100m for its Credit Income Investment Trust, falling short of the £250m it was targeting.
But William Nicoll (pictured), co-head of alternative credit at M&G, told Portfolio Adviser that £100m was not a disappointment given the original target was between £100m and £400m, and because liquidity constraints make it tricky to deploy large amounts of capital into private credit markets quickly.
Private debt has traditionally been the preserve of institutional investors such as pension funds and insurance companies, but Nicoll said aside from M&G’s parent company Prudential subscribing to 25% of the £100m issue, the rest came from “a lovely book of wealth managers”.
Slowly but surely
Several high-profile investment trusts have launched in recent months with mixed success.
The Smithson Investment Trust smashed its £250m target after raising £822m, but the Mobius Investment Trust raised just £100m of its £200m target, and the Merian Chrysalis Investment Company also raised £100m of its intended £200m.
Addressing this, Nicoll said: “We could never have raised that [as much as Smithson] because in the private markets you can’t spend that much money, so you have to build these things quite slowly. A big blow out like that is great in public liquid markets where you can get the thing invested, but you could not do that in private markets.”
He added: “It has been fascinating taking what we’ve been doing with institutional clients over the past decade to a whole new set of clients. This is a good long-term project for us over the next 10 or 20 years.”
Gearing for cyclical opportunities
The trust will be managed by Jeremy Richards and invest in a diversified portfolio of public and private debt, with about 70-80% in private market assets over the longer term.
It will target an annualised dividend yield of Libor plus 2.5% up until 31 December 2019 and Libor plus 4% in respect of each financial year thereafter.
The trust can be geared up to 30% but Nicoll does not expect this to exceed no more than 20% and said borrowing would only be used to take advantage of cyclical opportunities in credit markets.
“Credit markets have been cyclical and it is one year in five or 10 that you see extraordinary value, so that is what that is for. It is not leverage that you leave on the whole time.”
Interesting addition to the market
Ben Yearsley, director at Shore Financial Planning, said the trust is an interesting addition to the market.
He added: “This is what investment trusts should be used for and are good at; slightly quirkier and more illiquid assets. Investment trusts haven’t truly come to the party yet with fixed interest so it’s nice to see something a bit different coming out, targeting private issues or illiquid investments – however still predominantly investment grade.”
Adrian Lowcock, head of personal investing at Willis Owen, also described the trust as an interesting proposition from an experienced team as accessing this area of the market has usually been difficult.
However, he added: “We need to see how the trust performs through market cycles and in different conditions. The underlying assets are more illiquid but the fund is a diversifier for investors seeking bond exposure. I think we could see more interest in this space.”