UK investment trusts poised to benefit from private market demand
Private markets now make up around half of UK investment companies’ portfolios, putting them in a strong position to benefit from growing institutional demand for alternative assets, according to Fitch Ratings.
The ratings agency found that alternatives-focused UK-listed closed-ended funds, mainly investment trusts, have become a prominent and expanding part of the sector, investing across private equity, private credit, infrastructure, real estate and venture capital.
These investments accounted for £144bn, or 46 per cent, of total assets at the end of the first half of 2025, up from 32 per cent in 2010 and six per cent in 2000, Fitch said.
The agency said that, as a result of this growth and strong fundamentals such as robust capital structures, independent governance and range across alternative assets, UK investment companies are well placed to benefit from rising institutional demand. This comes as investors are seeking higher yields and enhanced diversification amid falling interest rates.
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“UK investment companies should benefit from growing institutional demand for alternative assets, due to their closed-ended structure and established record in private markets,” said Christian Kuendig, head of EMEA non-bank financial institutions at Fitch Ratings. “But persistent net asset value discounts and rising illiquid exposures will constrain leverage capacity.”
Fitch said materially wider discounts since 2021 have limited investment companies’ ability to raise capital, but it expects that narrower discounts would allow them to capitalise on increasing private asset investment opportunities.
However, the agency warned that investment companies should be mindful of rising shareholder activism, ongoing Financial Conduct Authority reforms around cost disclosure requirements and growing competition from long-term asset funds.
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Overall, the UK investment company sector comprises around 300 individual companies or trusts, with sector assets totalling £269bn at the end of the first nine months of 2025, according to the UK Association of Investment Companies.
Kuendig added: “Strong credit profiles, low gearing and sound liquidity should remain stable, though larger companies will have some competitive advantages through enhanced governance, improved capital allocation discipline, and diversified funding access as sector consolidation continues.”
Fitch warned that growing allocations to less liquid assets are increasingly limiting investment companies’ leverage capacity. However, ongoing sector consolidation, which would increase the average size of an investment trust, could also lead to incrementally higher leverage at larger firms.
The study added that European managers have also expanded their private markets exposure, alongside regulatory changes such as European long-term investment fund 2.0 and UK Solvency II reforms, which are expected to increase both institutional and retail participation.
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