Power to the people

David Prosser discusses the launch of The People’s Trust.

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The proof is always in the pudding. Having talked a good game for some time now, Daniel Godfrey now has to convince investors to part with tens of millions of pounds as he seeks a stock market listing for The People’s Trust next month. The investment company is aiming to raise £125m of funding for a 17 October flotation date.

Godfrey, a former head of both the Association of Investment Companies and the Investment Association, has been working towards this moment for well over a year. Last October, he launched a crowdfunding campaign which saw enthusiastic retail investors stump up more than £100,000 of cash to give him the wherewithal to work through the launch process. He has beaten the drum loudly at every opportunity.

Whether investors – both retail and institutional – now back him is another matter, of course, and Godfrey admits he isn’t counting his chickens. But while some equity-focused investment company launches have stuttered this year, The People’s Trust is counting on being sufficiently different to capture investors’ imagination. “We’ll be a company that's 100% owned by our customers so we have no external commercial interests to satisfy,” the marketing material promises.

The fund is aiming to generate an absolute return of 7% a year achieved over seven years, delivered by five external investment managers through a fund of funds approach that offers a diversified exposure to global equities. It will also invest at least 1% of assets – and up to 5% - in social impact investment. Crucially, the fund pledges: “We’ll aim to fulfil our purpose through true long-term investment, which means that we’ll have the time and patience to work with our investment managers and the companies they select.”

In the end, investors must decide for themselves on the merits of The People’s Trust. But it’s worth observing that it would be very difficult to deliver this venture through any vehicle other than an investment company. The closed-ended structure of the fund frees it to work towards its ambitions.

The sub-text of the commitment to “time and patience”, for example, is that the fund is realistic that there will be times when performance disappoints. In an open-ended vehicle, where managers must cope with inflows and outflows of investors’ money – which tend to be larger during more turbulent periods - sticking with the patient approach is not always so easy.

Equally, the idea of investor ownership is embedded in the structure of an investment company, which is a stock market-listed vehicle with all the fiduciary responsibilities of directors for shareholders’ interests that brings. The trust’s board is legally accountable to the shareholder base – and to underline the point, The People’s Trust intends to have an independent shareholder committee with powers to raise issues with the board and to write the annual report.

It’s a smart piece of branding, of course, but in truth all investment companies are “people’s trusts”, in that they are ultimately owned by their shareholders. The link between a closed-end fund and its investors is clear, legally enshrined and important for long-term performance, even if this nuance is sometimes lost in the conversation about short-term returns.