Investment Trust Company

It’s often said that the individual investor cannot match the buying power and therefore the benefits of the larger companies when playing the markets. This may be true to a large extent – if you’re a single individual you are unlikely to have the capital resources and expertise of a major corporate fund management operation. Yet one way around this could be the investment trust company. To understand the investment trust company and how this could be an investment opportunity for you, you’ll need to take into consideration that many public companies raise capital by offering their shares for sale. These shares are then subsequently traded in the markets. Out of this process the company gains money (it may also do so through its commercial activities) and it may use that money for a number of purposes from paying its employees up to playing the markets in turn through investment in stocks and shares.

Right back in the middle of the 19th century, people had the bright idea that they could more effectively deploy their capital by pooling it together and forming a specific investment trust company – in other words a company that exists to invest in the markets. The shares from this formation would be sold to raise capital that could be used by a professional fund manager to invest in stocks and shares, hopefully making a profit to be returned to the fund shareholders. The term investment trust company typically is used to refer to a closed-fund operation. This means that shares are offered to raise capital on a usually one-off initial public offer. New shares are rarely if ever subsequently issued or redeemed though they will be traded on the major exchanges through brokers. The capital thus raised is used to purchase and manage an investment portfolio of shares and holdings that will have a separate total value to the valuation of the trust company. An interesting point to note is that value of the portfolio under management may be more or less than the value of the investment trust company itself. Subsequently, new investors in the investment trust company have the opportunity to buy into the trust’s performance by buying or selling its shares.

Investment Trust Company Basics

• There are various forms of such organisations (such as open-ended or mutual investment funds) that offer different risk/reward profiles to potential investors;
• Buying a stake in any form of floating company (i.e. stocks and shares where their value may go down as well as up) is risky. You could suffer serious financial losses if you get it wrong;
• Investment in a funds management company can offer large rewards if things go well, but choosing the right one is important. Understanding their track record in fund management against market averages, and having an awareness of risk mitigation is also key;
• This is one of the most specialised and complicated areas of investment. In the case of a manufacturing company an investor can usually see how the company is performing with a glance at the profit and loss and balance sheet - this is much harder in the case of an investment trust company. Taking specialist advice and guidance from a financially astute company before you invest may be a very sensible idea;