UK Investment Companies to Grow on Private Asset Expansion
UK investment companies will continue to benefit from growing institutional demand for alternative assets, due to their closed-end structure and established record in private markets, Fitch Ratings says.
This is despite most investment companies trading at persistent discounts to their net asset value (NAV), which – in conjunction with rising illiquid exposures – could constrain growth and leverage capacity.
Investment companies’ credit profiles should remain sound, underpinned by good portfolio diversification and low leverage, but continued good governance over valuations and liquidity will be central as private exposures grow.
Alternative assets (private equity, private credit, infrastructure, real estate, and venture capital) have sharply increased, to 46% of UK investment companies’ investment portfolio at the end of first half of 2025 (2010: 32%; 2000: 6%).
Private markets have also grown: European managers have expanded private market exposures and tightened regulations (ELTIF 2.0 and UK Solvency II reforms), which Fitch analysts expect will increase institutional and retail participation.
Insurance capital is also increasingly allocated to private credit and illiquid assets. Fitch noted that discounts to NAV have tightened across most asset classes over the past year, albeit from a wide base following material widening from 2021.
Fitch expects further contraction on lower interest rates, rising shareholder activism, and ongoing FCA reforms to cost-disclosure requirements. Narrower discounts would allow investment companies to capitalise on increasing private asset investment opportunities.
Leverage is low, typically below 10% of assets, and is unlikely to rise materially as private allocations increase, given reduced leverage capacity from illiquid holdings. Fitch expects funding to diversify beyond committed revolving credit facilities towards medium- to long-term debt, broadening liability profiles.
The UK investment company sector has 300 individual investment companies or trusts, with sector assets of GBP269 billion at the end of 9 months of financial year 2025, according to the UK Association of Investment Companies. Ecobank Nigeria Settles $300m Eurobond Ahead of Maturity
