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Bond reform could bring £20bn to Reits and offshore trusts

Bond reform could bring £20bn to Reits and offshore trusts

Real estate investment trusts (Reits) and offshore funds listed on the London Stock Exchange could benefit from rule changes allowing them to be included in bonds sold to UK and ex-pat investors, analysts at Stifel believe.

The Association of Investment Companies, a trade body, has lobbied HM Revenue & Customs over what it perceives is an anomaly under which open-ended funds are eligible holdings for offshore bonds, while investment trusts and investment companies are excluded.

Offshore bonds are a 'wrapper' comparable to ISAs or pensions that allow investors to shelter and defer income tax. They are mostly sold to investors in the UK and overseas by insurance companies based in the Isle of Man and Dublin.

Stifel anticipates the rule change could come early next year, potentially opening up investment trusts and companies to what the AIC estimates is a £20 billion pool of offshore money controlled by wealth managers and financial planners. 

‘We think that if this change comes into effect, it will assist wealth managers with their asset allocation, making it easier to include many of the alternative income asset classes in their clients’ offshore portfolio bonds,’ noted analysts Iain Scouller and Maarten Freeriks.

‘Whilst the characteristics and structure of investment trusts, open-ended investment companies (Oeics) and Reits differ, it makes sense to level the playing field for portfolio bond investors, whether these listed funds are offshore or onshore,’ they added.

A number of well-known investment companies are domiciled offshore and could benefit from the reform. They include the likes of 3i Infrastructure (3IN), hedge fund BH Macro (BHMG), HICL Infrastructure (HICL), Marwyn Value Investors (MVI), F&C Commercial Property (FCPT) and Ruffer Investment Company (RICA).

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