Investec ticks off trusts’ boards with no ‘skin in the game’

The bi-annual Investec report that dissects board members' investment in their trusts has found 'room for improvement' in some closed-ended funds.

Investment company boards are putting more ‘skin in the game’ than ever but there are some notable laggers when it comes to non-executives backing the trusts that pay their fees, says broker Investec.

The latest Investec ‘Skin in the Game’ reveals there has been a seven-fold increase in share purchases by boards and fund managers in their investment trusts over the past decade. In 2010 boards and managers had invested an aggregate £687m into closed-ended funds, which has swelled to £4.81bn currently.

The same names crop up each year when the asset manager tallies up total investments: the Pershing Square (PSH ) management team, which includes US activist hedge funder Bill Ackman, tops the bill with a bumper investment of £1.3bn and the Rothschild family’s stake in RIT Capital (RCP ) is worth £834m.

However, there are some board members and chairs who are not as forthright about aligning their pockets with the shareholders they are serving.

In the ‘room for improvement’ section of its bi-annual report, Investec calculates the value of a board’s aggregate investment as a number of days’ fees.

The worst offender is the £88m Axiom European Financial Debt (AXI ), where the board’s aggregate investment is zero despite the board members’ tenure being an average of six years.

The 6.1%-yielding investment company is one of the top performers in its loans and bonds sector, with net asset value (NAV) rising 24.8% over the past year and the share price jumping 34.5%.

Chair of the trust William Scott, who has held his position since 2015 and collects a £35,000 annual fee, may be setting the tone for a lack of investment, as he has no stake in the listed fund.

The board of Ground Rents Income (GRIO ) also has zero investment expressed as a number of days fees although the average tenure on the £69m trust is four years.

However, the non-executives could be forgiven for not wanting to invest in the trust as it continues to review its investment strategy in response to the government’s review of leaseholds, which it invests in.

The specialist real estate investment trust has struggled with government plans to ban onerous residential leases and over the past year the share price has slipped 6.9% while the NAV has ticked 0.8% higher. The Reit is trading at a heavily discounted 32.2%.

The board members of Baillie Gifford-run Schiehallion (MNTN ) may be kicking themselves they didn’t back the pre-IPO ‘unicorn’ fund.

Once again, the board’s aggregate investment as a number of days fees is zero, with the average tenure on the fund – which was launched in 2019 – just two years.

A spokesman for Schiehallion said the trust is a ‘specialist vehicle for professional investors and as the minimum investment at initial public offering and in the C-share was £5m, it’s not a retail trust designed for its directors to have skin in the game’.

The investment company pulled off the biggest fund raising of the year so far, attracting £502m in April. The trust has seen its NAV jump a third over the past year, while its shares are up just over a quarter – leaving it trading at a 20% premium.

It may be obvious why the board of DP Aircraft I (DPA ) has chosen to invest just five days of fees in aggregate as the jet leasing fund found its fleet grounded during the Covid-19 pandemic.

The £5m fund currently trades on a discount of 87.8% after the shares slumped 78.4% over the past year and the NAV tumbled 75.6%.

Author of the Investec report and investment trust analyst Ben Newell said there are 8% of chairs and directors appointed in 2019 or before that are ‘yet to trouble the scorers’ although he noted that ‘a number of these are unable to do so for regulatory or taxation reasons’.

‘This lack of investment does not sit easily with the degree of commitment expected by most shareholders,’ he said.

All investment companies highlighted by Investec were contacted by Citywire for comment.

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