Investment Trust

Investment Trust
Investment Trust
Source: London Stock Exchange
Domain: Finance/Sales

Adherence to Green Bond Principles
EU Taxonomy 

Potential Impact: Moderate
Application to Armenia

Legal framework governing operations of non-public investment funds (up to 49 participants that came together to establish investment fund) is rather liberal in Armenia. Though under supervision of Central Bank of Armenia, that must approve the Rules of such funds, no license is foreseen for such entities and there is simplified reporting mechanisms in place. These entities are usually established by investors willing to finance the projects in certain sectors/sub-sectors of economy, thus, such organizational structures are suitable for mobilization of funds for investments into the renewable energy projects (e.g. yieldcos).

For the investment fund willing to target more participants and attract funds from the market the regulatory framework foresees licensing and tougher reporting procedures.

Government of Armenia and regulator (Central Bank of Armenia) could consider fiscal and non-fiscal incentives for promotion of this type of investment vehicle.

Investment trusts are closed-end funds that can hold a variety of asset classes, according to their specific, individual investment objectives and risk profile and the assets held can be global. Investment trusts have an unlimited life and can issue new equity or borrow to finance their activities. The attributes of investment trusts have made them an important vehicle for investing into the green economy.

Until recently, the green economy as a sector for investment had been fragmented across asset classes. A green investment trust could in theory hold any and all asset classes – from cleantech startups to privately developed renewable energy assets to green bonds – within one vehicle. In practice, green investment trust strategies will vary based on specialism and their target investor appetite.

Some focus on renewable energy projects – often with a “yieldco” model (see below) – while others focus on listed or private equity in green economy companies. Investment trusts are focusing on a greater diversity of technologies and geographical markets. Future developments are likely to see focus on greening particular sectors, such as real estate or transport. A green investment trust provides a mechanism to spread risk when examining the potential for new technologies, whilst providing daily liquidity, an ability to mark the asset to market and a clear exit strategy.

By working with expert fund managers and pooling funds with other interested market participants, an issuer can leverage the capital of their fellow investors and not be reliant on a single technology or management team, which can be particularly beneficial in fast-moving sectors and where there may be a variety of risks. Alternatively, an investment trust provides a vehicle into which an issuer can pool assets, making them available to other investors that are interested in a more mature or lower risk asset, freeing up capital and yet retaining a lower level of investment.