Flurry of activity in UK capital markets

Written by: KPMG Posted: 17/09/2021

BL74_KPMGadv_Rachid FrihmatRachid Frihmat, Audit Director, KPMG in the Crown Dependencies, explores the current – and future – listed funds landscape

Listed closed-ended investment funds (listed funds) continue to play an important role in the Guernsey funds sector. The island is home to more non-UK listed entities on the London Stock Exchange (LSE) markets than any other jurisdiction globally. 

Based on LSE data (December 2020), there were 102 Guernsey-incorporated entities listed across its various markets.  

Since the start of the Covid-19 outbreak, the boards and sponsors of listed funds have focused on dealing with many challenges and opportunities – significant fluctuations in share prices, the widening or narrowing of discounts and premiums, valuation issues, changes to dividend policies, pressures on ongoing charges and changes to the regulatory environment.

As management teams learn to operate within this Covid-19 environment, stakeholder confidence in capital markets is returning – and new investment opportunities are emerging. 

From our discussions with clients, fundraising projects and investment transactions that were postponed or cancelled during 2019/20 are now being reinvigorated and executed. 

We are also seeing new opportunities driven by renewed demand for real assets, private and digital capital and sustainability focused investments. 

Fundraising – H1 2021

The first half of 2021 has seen a significant increase in the level of investment activity in the UK capital markets when compared with the same period last year.
 
A significant proportion of the capital raised on the LSE during this period has been through existing listed fund structures, which have utilised either secondary or C-share issuances. 
  
Against this backdrop, Guernsey listed funds have performed strongly, with five such funds (based on capital raised that was greater than £100m) raising in total more than £1.364bn via secondary or C-share issuances. 

The underlying asset classes driving these Guernsey capital raises were:
• Private equity (£820m raised)  – private firms are now staying private for longer, so investors are allocating a greater proportion of capital to private or unlisted companies
• Renewables (£246m raised) – as governments around the world set their net-zero targets, demand for renewables continues to rise
• Covid-19 has accelerated the investment in digital assets (£185m raised) and infrastructure-related projects (£113m raised).

In addition to these allocations, non-Guernsey funds have seen significant investment activity in sectors related to healthcare and life sciences.

Consistent with the prior year, H1 2021 continued to be a difficult environment to raise capital through the IPO process. Of only a handful of the IPOs that managed to raise new capital, £549m was raised by two Guernsey funds – Cordiant Digital (investing in digital assets) and Taylor Maritime (investing in shipping assets).  

Fundraising – outlook
 
For the second half of 2021, the expectation is that the trends noted above will continue, while acknowledging that much will depend on how the UK economy (and beyond) reacts to the relaxation of lockdown measures. 

Alternatives, including private equity, infrastructure, renewables and digital-related assets, are expected to continue to provide opportunities to the capital markets. 

Several Guernsey listed funds have already set out their intention publicly to raise further capital in H2 2021; the outlook for secondary or C-share issuances for the remainder of 2021 remains positive.  
  
It is expected that opportunities for new IPO issuances could be limited and will be restricted to listed funds launching on either a niche investment strategy and/or capitalising on an excellent investment manager/sponsor track record. 

With the Financial Conduct Authority’s policy statement on SPACs having been revised, this will be a key topic to review in the upcoming months. 

Guernsey is well placed to capitalise on these opportunities. It can demonstrate its depth and breadth of experience in the alternatives listed funds space.

Find out more

Rachid Frihmat is an Audit Director at KPMG in the Crown Dependencies, based in the Guernsey office. He specialises in delivering audit and assurance services to financial services clients predominantly in the investment management industry, including funds listed on the LSE, the AIM of the LSE and alternative investment funds, comprising private equity, renewable energy and hedge fund structures. For more information, contact rfrihmat@kpmg.com

• This advertising feature was first published in the 2021 Funds Edition of Businesslife magazine


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