DEBT investment companies have seen growth of 493 per cent over the last decade and now represent £9.1bn in total assets, according to the Association of Investment Companies (AIC).
The total – which is across 31 companies in three sectors of Debt – Direct Lending, Debt – Loans and Bonds, and Debt – Structured Finance – marks a rise from £1.5m in total managed assets in July 2009, the trade body’s report added.
Debt investment companies offer high income during a period of ultra-low interest rates thanks to using a range of methods including peer-to-peer loans, but also come with higher risks and rewards than mainstream bonds.
“Debt has been one of the fastest growing areas of the investment company industry,” said Annabel Brodie-Smith, communications director of the AIC.
“Investors seeking income have been attracted by the generous yields achieved through a wide range of different strategies including corporate, asset-backed, distressed and P2P loans.
“Many of these strategies are based on hard-to-trade assets and can only work within the closed-ended structure of investment companies, where these assets can be held without the risk of suspensions or forced sales.”
But she warned that investors need to understand there were different risks and rewards from mainstream bonds before investing, and urged people to seek advice if required.
“While the yields are attractive for income seekers, debt investment companies should only be considered as part of a balanced, long-term portfolio. If investors are in any doubt as to whether investment companies are suitable for them they should speak to a financial adviser,” Brodie-Smith added.
Property – Debt was not considered as a debt sector for the purposes of the study by the AIC, which was founded in 1932 to represent the interests of the investment trust industry.