Last year saw a dearth of investment company launches with no initial public offerings (IPOs) of closed-end funds on the London Stock Exchange, a feat that may repeat this year, according to the gloomy findings of the annual Winterflood survey.

In a result that may alarm AT85 Global Mid-Market Infrastructure Income, which is attempting to become the first investment company to float in 15 months, just one out of 91 delegates at last month’s Winterflood Investment Company conference said they were ‘very likely’ to support a trust IPO or secondary share issue this year.

Nearly two thirds, or 64%, said they were ‘not very likely’ to do so, and another 8% stating they would ‘definitely not’ participate.

Of those surveyed, some were concerned that ‘IPOs invariably trade at a discount after launch’, while others said they did not need to buy new investment companies as there were ‘plenty of opportunities in the secondary market’.

Emma Bird, head of investment companies research at Winterflood, said ‘our hope was that this year would see a rebound in issuance activity’ but ‘significant investor caution remains’.

The troubles at Home Reit (HOME ), suspended last month after just over two years as a listed fund, may have added to investor disenchantment. However, the allegations of over-valuation and conflicts of interest at the homeless accommodation provider by short-seller Viceroy Research, that provoked the crisis have possibly boosted the profile of activist investors.

When asked whether activist investors and short-sellers were positive for the investment trust industry, 60% of the wealth managers, fund managers and analysts at the conference said they were ‘sometimes’ a force for good’, although some clarified their support was for activists pressing boards to tackle wide share price discounts rather than short-sellers looking to bring down a share price further.

Shunning smaller trusts

If investors are avoiding new launches, they are also becoming more hostile to smaller trusts. In 2013, 93% of those surveyed said they would invest in an investment company with a market value below £150m. This figure has reduced every year since to 65%, with investors in the latest poll stating the minnows only had a place if they offered niche market exposure not available elsewhere.

Concerns about the illiquidity of shares and the higher relative costs of running small quoted companies means there is a limited tolerance for funds delivering inadequate returns.

Presented with the fact that there are 100 trusts with under £200m of assets, 45% of respondents said more trusts should actively pursue consolidation, although this figure was down from 52% last year.

However, just over a third (36%) said underperformance from shares trailing at wide discounts to asset value should be the trigger for considering a merger, although 14% said mergers should only be pursued in rare circumstances.

‘While there is no guarantee that larger vehicles will automatically be re-rated, we believe that it increases the relevance of a fund and allows it to appeal to a potentially wider investment base,’ said Bird.

‘While we do not expect to see a wave of merger proposals, we believe that the sector would benefit from the trend of the last few years continuing.’

Last year saw Secure Income and LXI Reit (LXI ) join forces to create a £2bn real estate investment trust and JPMorgan Global Growth & Income (JGGI ) gobbled up Scottish and stable mate Elect to help lift its assets to £1.2bn.

This month has already seen two minnows raise the white flag: Abrdn Smaller Companies Income (ASCI )  announced its search for a merger partner while Investment Company (INV ) this week revealed it was prepared to wind up to resolve the problem of illiquidity and a heavily discounted share price.