Manchester & London risks losing trust status after excessive buybacks

MNL is close to breaching the 35% of public shares required to be deemed an investment company, with the management company owing 62.3% of the trust.

Manchester & London (MNL ) has bought back so many of its own shares that it risks losing its status as an investment company and the associated tax benefits.

A minimum of 35% of shares must be held by the public for a company to be deemed a trust according to UK listing rules, which MNL is fast approaching. After repurchasing many of its own shares, M&M Investment Company is now the controlling shareholder with a 62.3% stake in the trust – leaving only 37.7% owned publicly.

In MNL’s annual report, chair Daniel Wright said crossing the minimum public ownership threshold ‘would risk loss of its investment trust status, including loss of the exemption from UK corporation tax on chargeable gains and other adverse tax consequences, which could be detrimental to net asset value and shareholder returns’.

Share buybacks have consequently been put on pause, with the company’s directors barred from making any more purchases themselves. This includes manager Mark Sheppard, who owns M&M Investment Company.

The board is ‘reviewing structural options’ to remove voting power from some of M&M’s shares, which would allow them to continue their share buybacks without risk of losing investment trust status. However, this may take longer than hoped, according to Wright.

‘Given the complexity of potential solutions, the board does not expect a near-term resolution,’ he said. ‘The company will update shareholders in due course.’

‘Paradoxical’ discount

MNL’s discount narrowed from 15.3% to 13.7% over the 12 months to July after it bought back 1,844,039 of its own shares. This is in addition to the 575,417 shares purchased by the trust’s directors and managers.

Yet the fact MNL continues to trade on a double-digit discount at all is a surprise to Wright, who expected the trust’s strong performance over the period to narrow it further.

It made a total share price return of 32.1% over the one-year period, greatly outperforming its peers in the Association of Investment Companies’ global sector, who climbed 11.9% on average. Returns took a tumble in the first quarter of 2025 as tariffs rattled global markets, but MNL more than made up for this in the latter half of the year.

Wright pointed to excessive financial regulation in the UK as the culprit for its persistent discount. He highlighted other tech-focussed trusts that have also been victim to deep discounts despite strong returns.

‘Polar Capital Technology Trust (PCT ) has a ten-year annualised total return of greater than 25%, yet has traded close to a double-digit discount for most of 2024 and 2025 whilst also buying back its own shares regularly,’ Wright said.

‘Could this paradoxical situation be because the UK wealth industry’s regulation is overly averse to volatile asset classes even though they have performed successfully? We are not alone in raising these questions.’

Wright backed Chancellor Rachel Reeves’ pledge to reduce regulation, which she said had ‘gone too far in seeking to eliminate risk’ during her Mansion House speech in July. Here she likened regulation to the ‘boot on the neck of businesses choking off the enterprise and innovation that is the lifeblood of economic growth’.