Investment company chair Ed Warner has criticised non-executive directors who sit on five or more boards saying they can’t give the necessary attention to the ‘precious responsibility’ of overseeing a large amount of assets.

Speaking at the Association of Investment Companies’ director conference last week, Warner, who chairs HarbourVest Global Private Equity (HVPE ) and JLEN Environmental Assets (JLEN ), emphasised the commitment that each non-exec role represented after a challenging 2023 saw many closed-end funds trade on wide discounts which weakened shareholder returns and prompted a record £4bn of share buybacks.

‘People who think they can sit on five, six, or seven investment company boards are for the birds because you can’t give the due care and attention across that breadth of responsibilities. People need to take these roles much more seriously than some have,’ Warner said.

Investec’s ‘Skin in the Game’ report last year showed that of 1,054 non-executive directors, three sat on five boards, 28 on four boards and 66 on three boards.

Independent boards are a key advantage of investment companies over open-ended funds, but following several investment company governance failures last year, including the suspension of Home Reit (HOME ) and the revolt by shareholders in Hipgnosis Songs (SONG ), the level of oversight they provide has been thrust into the spotlight. 

Warner said board composition was critical, particularly when faced with addressing wide share price discounts. Surprisingly, he added that experience wasn’t always the most important factor when the going gets tough, underlining the importance of non-execs serving no more than nine years.

‘I think one of the issues that the sector has had for years is too stale a cohort of boards. Maybe I’m a part of that, but the more refreshing there is done of the cohort of people that make up the boards of these investment companies the better and I’ve seen fantastic trends in that in recent years.’

Speaking on the same panel, Emma Bird, Winterflood’s head of investment company research stressed the importance of specialist skills on the boards of more complicated alternative funds.

She added that there was a balance to strike between a non-executive director having the right amount of experience, but not losing out on the independence that can come with being on a board for too long.

The big issue

Warner said discounts were part of the attractions of the investment company sector. Just as premiums, when shares trade above asset value, were positive in good times, so the fact that listed funds stood on an average discount of 15% did not represent a crisis for the sector, but more a buying opportunity. 

While share buybacks won’t solve the problem of discounts alone, they did show a board’s confidence in a fund’s stated net asset value (NAV), he said, indicating his approval of Scottish Mortgage (SMT ) unveiling a £1bn buyback programme this month, the sector’s largest ever. 

‘I think this industry has got a big issue, the discount, but it is not a crisis. And if as a board you react as if it’s a crisis because one or two people have been poking you with a sharp stick, then you will do the wrong thing by your shareholders,’ he said, pointing to share buybacks programmes funded out of debt. 

He highlighted the importance of size, with a £700m market capitalisation increasingly becoming the minimum size of fund that provides enough liquidity for wealth managers to invest in, adding that further consolidation across the sector was a good thing. 

He instructed the room of non-executive directors to find new investors and preach the virtues of the sector, but prescribed no quick and easy fix.