A wave of consolidation across the wealth management sector has had a knock-on effect on investment trusts. Once a natural buyer for the vehicles, wealth managers now have to ensure they fulfil liquidity requirements and can be used across their client base to ensure consistency. In practice, this has created a pressure for investment trusts to scale, with wealth managers increasingly viewing £1bn as a rule-of-thumb cut-off point.
According to AIC figures, there are now 57 investment trusts that have hit this ‘magic number’ – around one-fifth of the overall market – with some doing so through organic growth. The largest trusts are 3i Group (£30.1bn), Scottish Mortgage (£15.6bn), Pershing Square (£10.6bn) and Polar Capital Technology (£8.6bn) – all of which have made it through strong investment returns and their popularity with investors.
For others, it has required enterprising boards to engineer larger trusts through M&A – an approach that has been building momentum in recent years. In October 2024, JPMorgan Japanese merged with JPMorgan Japan Small Cap Growth & Income to create a £1bn trust, while Invesco Asia Trust merged with Invesco Asia Dragon Trust in February 2025 to create what was then an £800m trust but is now over £1bn. The upcoming merger between Pacific Assets and Schroder Asian Total Return will create a new £1bn trust.
Other examples of large trusts coming together to create scale include Henderson European merging with Fidelity European last September to create a £2.1bn trust. For its part, JPMorgan Global Growth & Income was already over £1bn before it merged with Henderson International last year – the combined trust is now £3.3bn.
This drive towards larger trusts undoubtedly fulfils investor requirements for liquidity and helps wealth managers fulfil their regulatory obligations. It also helps investment trusts shore up demand for their shares, which keeps discounts tighter. Still, with this drive towards consolidation, are investment trusts losing some of their unique selling point?
“The main impetus for trust consolidation is coming from the wealth managers – who are themselves consolidating.
Some of the strongest long-term performers in the investment trust universe have historically been smaller, more nimble vehicles, able to preserve alpha and act with greater agility.”
Anthony Leatham, head of investment company research at Peel Hunt, sees the consolidation trend as understandable. “Wealth managers and model portfolio providers tend to favour vehicles that can absorb meaningful allocations without liquidity constraints, which in practice means market caps of £300m-plus and sufficient secondary market trading volumes,” he says. “As a result, sub-scale trusts can struggle to secure inclusion on central buy-lists or feature in firm-wide recommendations.”
And James Carthew, head of investment company research at QuotedData, points to reports from investment companies that wealth managers are requiring ever bigger trusts. “The main impetus for trust consolidation is coming from the wealth managers – who are themselves consolidating,” he says.
Benefits of scale
According to Leatham, greater scale can deliver tangible benefits, some of which can feed into investment performance. “As an example, larger trusts typically enjoy improved liquidity, tighter bid-offer spreads and a broader shareholder base, all of which can help support ratings,” he argues.
“There are also cost advantages – with fixed expenses spread across a larger asset base, resulting in lower ongoing charges and improved competitiveness.” While none of these factors directly relate to how the trust is invested, it can help shore up share-price performance and resilience.
There are also advantages within specific sectors, says Leatham – particularly infrastructure, renewables and private equity. “Scale can enhance deal origination, access to transactions and the ability to provide follow-on capital,” he explains.
“Larger trusts may also benefit from greater index inclusion – supporting passive demand – and can often develop stronger brand recognition among retail investors.” By extension, they can also access larger marketing budgets to boost that brand recognition.
Clear trade-off
Even so, Leatham acknowledges, there is a clear trade-off here. In capacity-constrained or niche strategies – for example, smaller companies, microcaps, specialist credit and certain thematic allocations – excessive scale can dilute returns and reduce manager flexibility. This is a big reason many investors look to investment trusts over open-ended funds in the first place so consolidation may remove a meaningful selling point for the former.
“Some of the strongest long-term performers in the investment trust universe have historically been smaller, more nimble vehicles, able to preserve alpha and act with greater agility,” Leatham observes. “An overemphasis on scale risks constraining an investment approach or diluting conviction.”
The wave of consolidation seen across the sector has reduced the number of listed vehicles, which may ultimately limit the diversity of strategies and asset class exposures available to investors.”
Carthew also believes a growing emphasis on scale may not always serve investors well. “Customers of those firms can miss out on interesting and esoteric investment opportunities,” he says. “I do not understand why they pay for ‘cookie-cutter’ asset allocations and investments drawn from a tightly controlled approved list of mainstream funds and ETFs.”
He instantly rattles off a range of smaller trusts that are generating good returns – Ashoka Whiteoak Emerging, Geiger Counter, Golden Prospect and Onward Opportunities – before adding: “It is not that long ago that market darling Rockwood Strategic was a small trust.”
Nevertheless, there are limits – for example, if trusts become too small, running costs become a real consideration. There are fixed costs to running any trust and naturally these can absorb a greater percentage of a smaller trust’s returns.
Total expense ratios can edge up to 2% for sub-£50m trusts, which is a meaningful drag on returns. That said, Carthew argues that should not weigh too heavily on investors’ thinking. “A few basis points here and there will not make much difference to returns relative to the alpha that can be generated by a good active manager,” he adds.
There are also broader consequences for the sector from the drive towards larger-scale trusts, with Carthew arguing “merger mania” can lead to a lack of choice for investors. “There may also have to be size constraints to reflect the illiquidity of the underlying investments,” he continues. “The best example of this is River UK Micro Cap, which has handed back cash more than once to avoid becoming too unwieldy.”
Adds Leathem: “More broadly, the wave of consolidation seen across the sector has reduced the number of listed vehicles, which may ultimately limit the diversity of strategies and asset class exposures available to investors. An increasing focus on scale may also create challenges for new IPOs, which are typically launched with a ‘start small and grow’ model – potentially reducing future investor choice.”
His view is that the advantages of scale need to be assessed on a case-by-case basis, taking into account the underlying asset class and investment strategy. A significant part of the strength of the investment trust sector has been its ability to offer a range of diversified strategies and return profiles for investors. Scale should not be pursued for its own sake.
