Investment companies have much to offer trustees considering options to invest in alternative assets, new guidance from the Pensions and Lifetime Savings Association (PLSA) and the Association of Investment Companies (AIC) has suggested.

The 'investment companies made simple guide' describes the structural features of investment companies that make them different from open-ended funds (OEFs), dealing with issues around liquidity, volatility, diversification, performance, costs, discounts and gearing.

It also outlined some of the key issues that trustees may wish to consider when reviewing whether their scheme should consider exposure to investment companies, such as whether the sector offers exposure to strategies or asset classes that could help achieve the scheme’s investment objectives and strategy.

For alternative assets in particular, it suggested that trustees may also want to give consideration as to how the liquidity profile of investment company shares compares with the liquidity available for other collective investment options, and the implications of these differences.

The guide highlighted real estate as an example case for investment companies, noting that while some pension funds seeking exposure to property have used OEFs for this, investment companies could offer a potentially attractive alternative.

In addition to the benefits for property, the guide suggested that the merits of holding other assets, including listed securities and other alternatives, such as private equity, unquoted debt and infrastructure using investment companies also deserves similar re-evaluation.

Commenting on the new guide, PLSA deputy director, policy, Joe Dabrowski, said: “Investment companies have unique features that could be advantageous to asset owners looking to diversify their investment portfolios.

"This guide explains the distinctive characteristics of investment companies and answers the key questions trustees might have about an investment vehicle which can trace its history back more than a century and a half.

“We’re pleased to partner with the AIC on the production of this guide as part of our commitment to giving PLSA members access to information about investment opportunities.”

Adding to this, AIC chief executive, Richard Stone, commented: “We are pleased to support this guide, which takes a detailed look at the pros and cons of investment companies compared to other fund structures.

“Investment companies offer easy access to alternative and illiquid assets, from private equity to infrastructure, within a listed company structure that can be traded easily on the stock market. They also have significant long-term performance advantages. We hope this guide will encourage more pension trustees to take a look at the sector.”

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