As financial markets evolve, investors are continually exploring new ways to enhance returns and mitigate risk. While traditional managed funds and direct equity investments have long been the foundation of many portfolios, Listed Investment Trusts (LITs) are emerging as a compelling alternative.
LITs offer a distinctive investment structure, combining liquidity, professional portfolio management, and access to a broader range of asset classes. Their growing popularity reflects a shift in investor preferences, driven by changing market conditions and an increasing focus on income-generating investments.
With this shift, fund managers are exploring how LITs can complement their offerings. But what exactly are LITs, and why are they becoming a preferred choice for investors in Australia?
The Rise of LITs in Australia
LITs have gained significant traction in the Australian investment landscape in recent years. As demand for alternative investment vehicles grows, LITs are an increasingly popular structure for those seeking consistent income, portfolio diversification, and long-term capital growth.
But what’s driving this momentum? How do LITs differ from traditional managed funds and Listed Investment Companies (LICs)? And how can fund managers capitalise on this trend to optimise their investment strategies?
At BoardRoom, we actively engage with industry stakeholders and key market players, helping fund managers navigate the complexities of launching and managing LITs. Our expertise in registry solutions ensures a seamless process, from IPO to ongoing investor management, positioning us as a trusted partner in this evolving space.
What Are LITs?
A LIT is a closed-ended investment vehicle that provides investors access to a professionally managed portfolio of assets. LITs operate similarly to Listed Investment Companies (LICs) but with one crucial distinction – their structure.
While LICs are companies that pay dividends at their discretion, LITs are structured as trusts, meaning they are required to distribute all taxable income to investors. This distinction has important tax implications, making LITs particularly attractive to investors seeking regular income stream.
Both LITs and LICs function as closed-ended funds, meaning they issue a fixed number of shares (LICs) or units (LITs) at the time of their Initial Public Offering (IPO). These shares or units are then freely traded on the Australian Securities Exchange (ASX), providing investors with liquidity without requiring fund managers to issue or redeem units in response to investor demand.
Key Features of LIT Investments:
- Traded on an Exchange – Investors can buy and sell LITs like any other listed security on the ASX.
- Closed-Ended Structure – A fixed pool of capital allows fund managers to invest in less liquid assets without the risk of forced sales.
- Tax Transparency – Unlike LICs, which retain earnings and pay dividends, LITs pass all taxable income directly to investors, making them a compelling choice for income-focused investors.
- Exposure to Alternative Asset Classes – LITs can invest in a wide range of assets, including private credit, fixed income, equities, and corporate loans.
Why Are LITs Becoming Increasingly Popular?
Over the past few years, we have observed a growing trend among fund managers exploring LIT investments as an alternative to traditional open-ended managed funds.
Here are several factors that are driving this shift:
1. Shifts in the Bank Hybrid Market
One of the most significant factors influencing the rise of LITs is the changing bank hybrid market. With banks facing increased regulatory pressure and capital requirements, many fund managers have turned to alternative fixed-income solutions, including private credit LITs. These vehicles offer investors attractive yields while giving fund managers the flexibility to invest in corporate debt, infrastructure, and other non-traditional assets.
2. Demand for Predictable Income Streams
In an environment where investors are increasingly seeking stable income, the tax-efficient nature of LITs makes them an appealing option. Because LITs must distribute all taxable income, they provide investors with a level of transparency and consistent cash flows that traditional managed funds may lack.
3. Access to Less Liquid Assets
The closed-ended structure of LITs allows fund managers to allocate capital to less liquid investment opportunities, such as private equity, infrastructure, and fixed-income securities. Unlike open-ended funds, which must maintain liquidity to meet redemption requests, LIT managers can take a long-term approach to asset allocation, potentially enhancing returns.
4. Liquidity & Market Efficiency
While managed funds require investors to apply for unit redemptions, potentially leading to delays or liquidity constraints, LITs offer real-time liquidity on the ASX. Investors can trade units instantly at market prices, making them an attractive option for those looking to diversify their portfolios without being locked into traditional fund structures.
BoardRoom: Leading the Way in LIT Registry Solutions
At BoardRoom, we have been at the forefront of the LIT investment evolution, supporting fund managers in navigating the complexities of launching and managing these vehicles.
As a market-leading registry solution, our expertise includes:
- Managing IPOs and secondary market trading for new and existing LITs.
- Providing end-to-end registry services, including investor relations, compliance, and reporting.
- Offering tailored solutions to help fund managers streamline their operations and enhance investor engagement.
Recently, BoardRoom was appointed to manage the IPO and ongoing listed and unlisted registry for several high-profile LITs, including:
- Realm Dominion Income Trust (ASX: DN1)
- MA Credit Income Trust (ASX: MA1)
These appointments reinforce BoardRoom’s position as a trusted partner for fund managers seeking to capitalise on the growing demand for LIT investments.
Looking Ahead: Is an LIT Right for Your Fund?
If you are considering launching an LIT, now is the time to explore the opportunities and challenges associated with this investment structure. At BoardRoom, we are committed to providing the expertise, technology, and industry insights fund managers need to navigate the complexities of the LIT landscape.
Contact George Lygoyris, Chief Commercial Officer, at george.lygoyris@boardroomlimited.com.au to discuss how we can support your LIT journey.
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