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01 November 2023

Market Insight: A Changing Marketplace

This article was taken from the September 2023 issue of Market Insight. To subscribe to our investment publications, please visit www.redmayne.co.uk/publications.

After a quiet summer period, activity is now returning to financial markets. Recent news, suggesting that central banks are coming to the end of their interest rate hiking cycles, means that financial market participants will be reassessing current opportunities with greater levels of certainty. This looks to be feeding through with both companies and investors returning to participation in both public and private transactions, following an extended period of muted activity.
 
One unexpected consequence of interest rate rises has been an increase in commentary around one of the UK’s oldest investment vehicles which dates back to 1868, the investment trust. Having ballooned in assets through the zero-interest rate environment, attention regarding the sector has turned to costing disclosures following a piece of European regulation dating back to 2018. Some argue the costing guidance creates an artificially expensive disclosure which has the potential to take the wind out of the sales of a sector that has a significant part to play in the provision of permanent capital to infrastructure projects and the achievement of net zero targets in the UK.
 
Following a period of depressed activity in the primary markets, notable Initial Public Offerings (IPOs) look to be returning in the US. Arm Holdings, the UK chip designer, enjoyed a strong start to public market trading with the shares jumping more than 25% on the first day. More debuts followed, including one from the famous German footwear company, Birkenstock. With big valuations on offer across the pond, London continues to struggle to generate primary market activity.
 
Alongside activity in the IPO market, we have seen some uptick in relevant activity in private market transactions. Listed private equity trusts have always experienced some scrutiny around the carrying value of their assets, leading many to trade on wide discounts to their reported net asset values (NAV). In the September 2023 edition of Market Insight, we looked at Hg Capital Trust, a technology focused private equity investment trust, which has seen several sales at healthy premiums to the carrying values, providing both validity and uplifts to the reported NAV.
 
One area where activity remained muted was UK offshore wind farm auctions, an area of great importance in respect of the country achieving net zero by 2050. Recent reports highlighted a failed auction with no bids for wind farms as inflated construction cost charges made new projects economically unviable at the underlying power prices. News of Vattenfall ceasing development of its Norfolk Boreas offshore wind site has the potential to impact future asset construction and thus government target achievement. The three UK-listed, wind focused investment trusts look to have shrugged off the news, with mostly operational assets and little exposure to those in the pre-construction phase of development.
 
Please note that this communication is for information only and does not constitute a recommendation to buy or sell the shares of the investments mentioned. Investments and income arising from them can fall as well as rise in value. Past performance and forecasts are not reliable indicators of future results and performance.
Market Insight: A Changing Marketplace

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