TWO investment trusts run by Edinburgh-based Standard Life Aberdeen have announced plans to merge.

Standard Life UK Smaller Companies Trust and Dunedin Smaller Companies Investment Trust would have more than £550 million of assets under management following the proposed deal.

The much-bigger Standard Life trust would bring £400m of those assets to the merged entity, while its counterpart, which had been run by Aberdeen Asset Management before last year’s £11bn merger of Standard Life and Aberdeen, around £160m.

Shares in the Dunedin trust rose nearly eight per cent to 308p on the news.

The deal would be the second merger undertaken by the Standard Life UK Smaller Companies Trust in 10 years, after it took over the £40m Gartmore Smaller Companies trust in 2008. Such moves are unusual in the investment trust sector.

Following the merger, the trust will continue to be run by Standard Life fund management veteran Harry Nimmo, who is said to have delivered “some spectacular returns for shareholders over the last 15 years”.

For the year ended June 30, 2017, the company delivered a diluted net asset value (NAV) total return of 35%, compared with a total return of 29.1% for its benchmark Numis Smaller Companies ex Investment Companies Index.

It is understood the merger is not a direct consequence of the combination of Standard Life and Aberdeen Asset Management. But it was one factor which prompted the Dunedin board to carry out a strategic review of the trust, as that merger effectively led to it being managed alongside a company with a very similar UK smaller companies mandate.

Dunedin also noted yesterday that the company’s size and the secondary market liquidity in its shares have made it challenging to attract new investors.

Chairman James Barnes added: “The proposed merger with Standard Life UK Smaller Companies Trust will resolve these issues, creating a merged trust with assets of over £550m and substantially greater secondary market liquidity.

“As Standard Life UK Smaller Companies Trust has consistently had a substantially stronger rating than the company, the board believes that the merger will result in the company’s shareholders benefiting from a significant increase in the market value of their investment.”

Allister Langlands, chairman of the Standard Life UK Smaller Companies Trust, said: “The merger with Dunedin will benefit the company’s shareholders, through increased scale, a reduction in the ongoing charges ratio and increased liquidity.”