Update on the UK listed fund sector

Whilst IPO activity and secondary fundraisings remain very subdued, the past year has seen considerable corporate activity within the sector.

A number of funds have continued to implement buy-back programmes or return cash to shareholders through tender offers seeking to address ongoing concerns around liquidity and discount levels. During the year some funds have also announced strategic reviews or formal sale processes or commenced managed wind downs with a view to the orderly realisation of their portfolios.

Shareholder activism continues to be a feature of the market with renewed attempts to replace boards and managers or change investment strategies - most recently Saba’s blocking of the merger of Edinburgh Worldwide with Baillie Gifford US Growth and its intention to requisition a general meeting of Edinburgh Worldwide Investment Trust with the intention of appointing a new board. More generally, we have seen a number of proposed mergers between listed funds seeking to achieve scale and cost synergies or diversify asset classes. Not all of these transactions have been implemented, despite in many cases a very feasible rationale, and in some cases have become subject to activist intervention.

As mentioned above, capital markets activity remains very subdued. In an effort to reinvigorate UK markets, the Chancellor recently announced a three-year stamp duty exemption on trading in shares in companies listing in the UK. This, in addition to the recent changes to the UK Listing Rules and the changes to the UK prospectus regime (discussed below), is designed to stimulate capital markets activity but with another very poor year for new capital raised in 2025, much turns on an improvement in sentiment in 2026 and it remains to be seen how quickly the IPO market for listed funds comes back.

The repercussions of changes in government policy were also demonstrated by the announcement by the Department of Net Zero and Energy Security of a consultation in November on changes to the inflation indexation calculation used in the renewables obligation (RO) and feed-in-tariffs (FIT) schemes which was of immediate relevance to listed renewables funds and their managers.

In the regulatory context, the FCA has recently confirmed that UK-listed closed-end funds will have the flexibility to present their expenses clearly and fairly under the new consumer composite investments rules due to come into force in May 2027. This move has been very much welcomed by the industry including the provisions relating to the annual ongoing costs figure (OCF) being presented without the inclusion of transaction costs, performance fees and one-off costs, although these would have to be shown separately. Further, funds investing in investment companies will not have to aggregate their underlying costs in their OCF, removing the deterrent for “funds of funds” to buy closed-ended funds, although these costs will have to be clearly presented.

In the summer, the FCA published its final rules in relation to reform of the UK prospectus regime. These rules will come into force on 19 January 2026. The key change from the existing regime is the increase of the current annual prospectus exemption for admission of further securities of the same class to a regulated market (such as the Main Market) post-IPO from 20 percent to 75 percent and in the case of closed-ended investment funds, the annual threshold is set higher at 100 percent. The FCA is also introducing a new exemption intended to allow such funds to undertake C share issuances without an admission prospectus where the purpose of the issue is to provide further capital for deployment in accordance with the investment policy.