Invesco High Income and Income funds: 60% write down of unquoted assets

31 March 2020 – In a statement today, Invesco has said that it is writing down 60% of the unquoted assets in Invesco High Income and Invesco Income funds.

The company said: “Our UK Equities funds have seen changes in portfolio mix over the last year, as we continue to work on behalf of our clients’ best interests over the short and longer term. Over that period we have substantially increased liquidity within our UK portfolios and increased allocations to a number of larger cap names.

“The fall in publicly quoted markets both in the UK and around the world, as a result of the current COVID-19 outbreak, has led us to conclude now is the right time to go further with these changes. Volatile markets have amplified our clients’ desire for liquidity and the value they ascribe to this dimension of the portfolios. They have also led to some significant investment opportunities to drive value for our clients across a wide range of large cap and mid-cap companies in the UK.

“As a result, we have reached the conclusion that we wish to dispose of unquoted assets held in the portfolio in order to redeploy capital raised into those publicly quoted assets that have been heavily discounted, well below our assessment of their true value. The prices of the unquoted assets currently held in the portfolio have therefore been adjusted in line with internal pricing policies by the independent Unquoted Pricing Committee, with the primary intention of protecting the interests of the investors in the funds in an equitable way.

“A mark-down has been made to the values of unquoted stocks, in accordance with policies of the independent Unquoted Pricing Committee, by 60%. Invesco continues actively to explore the realisation of the unquoted assets in the portfolio. This is progressing as anticipated.

“We realise, of course, that a reallocation of capital from unquoted to publicly listed equity is a change in the fund composition. However, these are extraordinary times, which call for decisive and positive action to look after the best interests of clients in the short and longer term. This step is entirely consistent with our valuation driven, risk-adjusted investment management strategy and ensures we remain in tune with market conditions. It builds on the path we have already been following when it comes to the balance of assets that will enable us to deliver on our strategy to fulfil client goals.”

In response, Juliet Schooling Latter, research director at Chelsea Financial Services, said:

“Invesco’s decision to write down 60% of the illiquid, unquoted stocks in Invesco High Income and Income funds seems a little drastic. In the VCT space, where managers specifically invest in unquoted companies, we have seen write downs of around 5%-22%. Invesco’s write down is three to ten times larger and will result in an approximate 5% loss for the funds’ unitholders.

“We understand Invesco’s wish to move away from these assets into more attractive parts of the market, but the amount of write down is unjustified in our view. While there may be investor appetite for the funds to hold fewer unquoted stocks, I would doubt that investors would want this at the cost of a 5% drop in the value of their investments.”