Welcome to the hotseat. We've prepared a guide if you'd like to read more about how it works.

How can Investment Trust Companies raise equity capital?

0 votes
asked Sep 14, 2018 in BUS 4027W - Actuarial Risk Management by anonymous

Investment Trust Companies (ITCs) are closed-ended funds and are closed to new money after the initial tranche is invested. I understand how the company could raise loan capital but I don't understand how they can raise equity capital. Surely by raising equity capital they would be accepting new money to be invested and it would then not be closed-ended? Or does their ability to raise equity capital only pertain to the first equity offering when the ITC is set up and the first tranche is being raised?

1 Answer

+2 votes
answered Oct 26, 2018 by Natank (680 points)

As far as I understand it, an investor can purchase shares in an ITC during an initial public offering or when the company decides to issue additional shares. Both share offerings are relatively infrequent though, so vast majority of share purchases will be from other share owners.

I think the main difference between close-ended and open-ended funds, is that you can always purchase shares directly from the open-ended fund, but in an ITC you will mostly be trading with other shareholders as share issues are rare.

I think when they talk about closed-ended funds being closed to new capital they mean that individuals cannot just go to the company and request more shares. However, I do not think this means that the company cannot issue more shares.