The Mercury's Ready to Rise at Hg Capital; INVESTMENT EXTRA

Article excerpt

Byline: BRIAN O'CONNOR

THE split capital fiasco hangs over the investment trust industry like marsh gas on a bog. This is a pity, because it is obscuring some excellent performance.

In the year to February, when the Footsie rose 27pc and world markets 24pc, conventional trusts rose 45pc.

Even the battered 'splits' bounced 43pc - or at least the survivors did.

That adds to the pressure on fund managers and brokers to open negotiations on compensation as Financial Services Authority chief John Tiner wants.

The sums are daunting - up to [pounds sterling]500m is one estimate. But if the issue could be settled, investment trusts could get a new lease of life.

That would be welcome news for many trusts and managers that steered clear of the 'splits' abuses of excessive borrowing and cross-investment.

One of the attractions of trusts is that they offer a way into specialist sectors, such as venture capital and those that take companies private.

Critics say venture capital can be more like vulture capital, but it is one of the great growth industries of the last 15 years.

Replacing equity with debt has been profitable as interest rates kept falling. Giving managers hefty incentives has been a potent tool for lifting performance.

Long term, society may reckon up the cost in jobs and pensions. But for investors the returns have been impressive.

Hg Capital Trust has its roots in the old Mercury Private Equity, once part of the Mercury empire that was swallowed up by Merrill Lynch. …