UK Listed Investment Companies: Navigating Regulatory Crossroads to Reclaim Their Growth Mandate

The UK's Listed Investment Companies (LICs)—long-standing vehicles for retail investors to access diversified portfolios and long-term infrastructure projects—are at a critical juncture. Post-Brexit regulatory reforms, while seeking to simplify cost disclosures, have inadvertently created a double-regulation quagmire that threatens their ability to attract retail capital and fund critical infrastructure. This article argues that targeted exemptions from EU-style disclosure rules are essential to restore LICs' role as vital engines of retail participation in growth assets. Investors should advocate for clarity and position early in LICs ahead of potential policy shifts.

The LIC Value Proposition Under Siege

LICs have historically provided permanent capital—a unique advantage for infrastructure and real estate projects requiring long-term funding. Their closed-ended structure allows managers to avoid redemption pressures, while their listed nature offers liquidity. Yet, post-Brexit regulatory crosscurrents are undermining this model:

1. EU-style Cost Disclosure Overreach:
   Under the EU's PRIIPs Regulation, LICs were forced to disclose “implicit transaction costs” such as bid-ask spreads and liquidity premiums. These metrics, however, are already reflected in share prices, creating artificial perceptions of high costs. The UK's FCA has temporarily exempted LICs from these rules but plans to finalize a Consumer Composite Investment (CCI) regime by late 2025. While the CCI removes implicit cost disclosures, UK firms still face dual compliance if operating in the EU.

2. Sustainability Reporting Clashes:
   The UK's proposed climate transition plans for FTSE 100 firms and financial institutions clash with the EU's CSRD, which mandates broader reporting. LICs managing cross-border infrastructure projects now face dual reporting regimes, increasing compliance costs and distracting from core investment mandates.

3. Tax Complexity:
   UK reforms to carried interest taxation, effective April 2026, introduce a 34.075% effective rate for qualifying gains. While beneficial, non-UK residents face apportionment rules tied to UK workdays—a hurdle for global fund managers.

Why LICs Matter for Retail and Infrastructure

LICs are critical intermediaries in two key areas:
- Retail Participation: They democratize access to complex assets (e.g., infrastructure, private equity) that individual investors cannot easily buy.
- Infrastructure Funding: Their permanent capital model aligns with the 10–30 year timelines of projects like renewable energy grids or transportation systems.

The double-regulation burden risks stifling this role. For example:
- Disclosure Overload: Retail investors may shun LICs if complex cost metrics—already embedded in prices—create confusion.
- Cross-Border Deterrent: Infrastructure projects spanning the UK and EU require managers to navigate divergent rules, raising costs and limiting scalability.

A Path Forward: Regulatory Reforms to Preserve LIC Utility

To restore LICs' growth mandate, policymakers must:

1. Finalize the CCI Regime Permanently:
   The FCA's interim forbearance from PRIIPs is a step forward. Finalizing the CCI's exemption from implicit cost disclosures will eliminate misleading metrics and reduce compliance costs.

2. Align Sustainability Reporting:
   The UK should harmonize its climate transition plans with the ISSB framework to avoid clashing with EU rules, reducing dual-reporting burdens.

3. Streamline Cross-Border Tax Rules:
   Clarify carried interest apportionment rules to ensure global managers can efficiently allocate capital to UK infrastructure projects.

Investment Implications: Position for Regulatory Clarity

LICs present a compelling contrarian opportunity as markets anticipate reforms:

• Near-Term Risks: Regulatory uncertainty may depress valuations.
• Long-Term Reward: A streamlined framework could unlock retail flows and infrastructure capital, boosting LIC dividends and share prices.

Investment Thesis:
- Buy LICs with Strong Infrastructure Exposure: Firms like HICL Infrastructure PLC (LSE:HICL) or British Listed Investments (LSE:BLT), which focus on regulated utilities and transport assets, stand to benefit most from regulatory simplification.
- Advocate for Policy Change: Retail investors should pressure regulators to exempt LICs from EU-style disclosures, ensuring their role as permanent capital vehicles is preserved.

Conclusion

UK Listed Investment Companies are at a pivotal moment. Their ability to bridge retail capital and long-term infrastructure hinges on policymakers exempting them from redundant EU-style regulations. Investors who act now—by engaging in advocacy and allocating to LICs—will position themselves to capitalize on the post-reform growth surge. The path to a thriving UK infrastructure ecosystem begins with regulatory clarity—and LICs must remain its cornerstone.