Report reveals the chairs who have not invested in the investment trust they oversee.
Over the past decade, there has been a marked increase in investment trust board members and fund managers having a meaningful personal investment in the company they represent. However, there is plenty of room for improvement, according to the latest ‘skin in the game’ report by Investec Securities.
The report points out that 15 chairs (5% of those featured) have no investment in their company. However, this includes three chairs who have been appointed this year. When stripping the recent appointments out on the grounds that they may put money into the company in this calendar year, 12 trusts remain (detailed below).
The report notes: “This lack of investment does not sit easily with the degree of commitment expected by most shareholders.”
In addition, 44 chairs who have sat on an investment trust’s board for at least five years currently have a shareholding valued at less than their annual fee.
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Investec Securities has pushed for greater transparency, echoing calls from interactive investor, which is campaigning for change on this issue. Currently, only investment trust fund managers with very large stakes (holding more than 3% of the shares) are obliged to report their shareholdings. The Investec report includes those managers who have disclosed, of which 77 have personal investments of over £1 million in the trust they manage.
The report says: “While investment companies are required to disclose transactions by board members, there is no such requirement for managers. Given strong investor demand for such information, this is disappointing.”
Chairs with no ‘skin in the game’
|Company||Chair||Appointment to board||Annual fee (£)|
|Oryx International Growth Fund||Nigel Cayzer||1994||27,500|
|Aberdeen Standard Asia Focus||Nigel Cayzer||1995||35,000|
|New Star||Geoffrey Howard-Spink||2000||25,000|
|Baker Steel Resources||Howard Miles||2010||35,000|
|GCP Infrastructure Investments||Ian Reeves CBE||2010||77,500|
|Axiom European Financial Debt||William Scott||2015||35,000|
|Honeycomb Investment Trust||Robert Sharpe||2015||48,000|
|Vietnam Enterprise Investments||Stanley Chou||2016||26,558|
|BH Macro||Richard Horlick||2019||45,000|
|The Schiehallion Fund||Dr Linda Yueh||2019||46,426|
|BMO Capital & Income||Jonathan Cartwright||2019||37,000|
|Gabelli Value Plus+ Trust||Peter Dicks||2019||35,000|
Source: Investec Securities.
Overall, though, there has been a notable uptick over the years in the amount held by boards and managers. A total of £4.79 billion is held, a sevenfold increase on £687 million in 2010.
Over the past decade, another big positive is that significant progress has been made in improving gender diversity. Just over one third (34.5%) of investment company directorships are now held by women, compared to just 8% in 2010. Meanwhile, the number of female chairs has increased to 59 from just nine in 2010. In addition, the number of all-male boards has fallen from 159 to 23. Overall, Investec’s report covers 298 investment companies.
The largest investments by a board member or a fund manager is the management team of Pershing Square (LSE:PSH) at £1.32 billion, followed by the Rothschild family at RIT Capital (LSE:RCP), who have invested £834 million.
Of trusts in the interactive investor Super 60 or ACE 40 lists, the top five largest investments by management teams disclosed in the report are: Scottish Mortgage (LSE:SMT) at £200 million, Utilico Emerging Markets (LSE:UEM) at £60.8 million, Capital Gearing (LSE:CGT) at £22 million, Mobius Investment Trust (LSE:MMIT) at £21.2 million and Syncona (LSE:SYNC) at £3.7 million.
Overall, 51 chairs and directors have an investment in excess of £1 million.
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‘Skin in the game’ explained and why it matters
Directors and fund managers having their own personal investments in the companies they direct or manage aligns interests with shareholders. Bear in mind, though, that this does not guarantee success.
Alan Brierley, director of investment companies research at Investec, points out: “A fund manager having skin in the game sends a clear and powerful message to both existing and potential investors.”
interactive investor customers agree. A survey of 1,800 visitors to our website found almost nine in 10 (88%) say it should be mandatory for fund managers to disclose whether they invest in the fund they manage. In addition, 85% said skin in the game would align fund manager interests with their own. Only 11% thought it could create a conflict of interest and encourage fund managers to take either too little or too much risk.
interactive investor has written both to the Financial Conduct Authority (FCA) and the Financial Services Consumer Panel, calling for this information be made available to retail investors.
For funds across the pond, the US’ Securities and Exchange Commission has, since 2005, required fund managers to disclose how much they invest in their own funds. Fund managers disclose by band rather than the precise amount. The bands are: none, $1–$10,000, $10,001–$50,000, $50,001–$100,000, $100,001–$500,000, $500,001–$1 million, and more than $1 million.
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