splitcapital

Splitcapital refers to a type of investment company, often structured as an investment trust, that has issued different classes of shares with distinct rights and entitlements to the company's income and capital. These classes typically include a zero-dividend preference share and one or more classes of ordinary or deferred shares. The preference shares usually receive a fixed, predetermined dividend, and their claim on the company's assets is limited to their capital value plus any accrued dividends. They typically do not participate in capital appreciation beyond this.

The ordinary or deferred shares, in contrast, are entitled to all income generated by the company after the preference dividends have been paid. Crucially, they also receive any remaining capital upon the winding up or liquidation of the company, which can include any capital growth achieved by the underlying investments. This structure allows investors seeking income to invest in the preference shares, while those seeking capital growth and willing to accept higher risk can invest in the ordinary shares.

Splitcapital structures were particularly popular in the UK in the late 20th and early 21st centuries. The performance of the ordinary shares is highly geared, meaning that small movements in the value of the underlying assets can lead to magnified gains or losses for ordinary shareholders. This gearing is a key feature and risk of the splitcapital model. The realization of this gearing effect is often tied to the company's defined lifespan, at the end of which the company is usually wound up.