Investment trust veteran Chris Mills of Harwood Capital has an impressive amount of ‘skin in the game’, with £150m of his own cash invested in the trusts he manages.

The latest ‘Skin in the Game’ report from Investec outlines the managers and board members who are backing their portfolios with huge sums of money, as well as those who are failing to put their money where their mouth is.

Harwood Capital founder and veteran activist investor Mills features on Investec’s list of directors with a personal investment in excess of £1m. Top of this list is the Cayzer family with £1bn in Caledonia (CLDN ), and the Rothschild family with £567m in RIT Capital Partners (RCP ).

Meanwhile, Tetragon Financial Group (TFG ) founder Reade Griffith has £181m invested in hedge fund platform Tetragon Financial.

While US investor Griffith may have more cash at stake, Mills will be better known to UK investors thanks to his long history of managing trusts.

The bulk of his investment is in the North Atlantic Smaller Companies (NAS ) trust, which he has managed since 1982 and has amassed a stake in worth £142m. This makes him the largest shareholder with 28.9% of the share capital. His ownership of the US and UK smaller companies fund dwarfs the 6.9% stake held by the second largest shareholder CG Asset Management.

Mills is paid an annual fee of £2.9m for his work as chief executive and investment manager of NAS.

He has another £4.6m invested directly in Oryx International Growth (OIG ), the £168m UK and US smaller companies fund he has managed since 1995. His 2.9% stake makes him the second largest shareholder, while Harwood Capital has a 53% stake.

Investec added that Mills ‘has an indirect holding in Oryx through his investment in NAS’. This means his total investment totals £28.6m.

The latest trust offering from Mills is Achilles (AIC ), an activist trust he set up with former Round Hill chair Robert Naylor, and with whom he managed a successful exit for Hipgnosis Songs investors, earning them a Citywire investment trust best board award last year.

Between them the pair have invested £1.79m in the fund, which targets alternatives investment companies trading at wide discounts. Mills has the majority invested with £1.58m.

Finally, Mills also sits on the board of PRS Reit (PRSR ) and picks up a £37,500 a year fee but has zero personal stake in the private-rented property trust. 

Mills and Harwood Capital were approached for comment.

Too much skin in the game

While investors may be encouraged by managers and board members taking shares and aligning their interests with other shareholders, Investec’s Ben Newell said there is such a thing as ‘too much skin in the game’.

‘In recent years, we have seen a handful of cases where significant management stakes have arguably given managers too much power, and when compounded by weak corporate governance, this has resulted in poor outcomes for shareholders,’ he explained.

He flagged Boussard & Gavaudan, which has been wound down, and hedge fund Gabelli Merchant (GMP ) as examples. The latter is 91% owned by Associated Capital Group, which in turn is run by Mario Gabelli, who has a 2.9% direct stake in the fund he set up.

JZ Capital Partners (JZCP ) founders and managers Jay Jordan and David Zalaznick both own 13.6% of the portfolio, according to Reuters.

Third Point Investors (TPOU ) is another example. It recently came under fire for its plan to turn itself into a reinsurance platform with the purchase of Malibu Life.

The £423m London-listed hedge fund run by Dan Loeb is planning an all-share combination with Malibu Life, whose parent company is wholly owned by Third Point Opportunities Master fund. To placate shareholders, TPOU has offered a tender offer of at least $75m (£55m) at a discount of 12.5%, but this has rankled some investors.

Shareholders have little chance to vote down the move as Loeb owns 25% of the fund and has said he will vote in favour of the Malibu Life acquisition. Activist group Asset Value Investors has been particularly outspoken, calling it an ‘odious related-party deal’ and a ‘misadventure into insurance’.

‘Given the fundamental change in the investment proposition and the related party nature of the transaction, we find it deeply disappointing that shareholders have not been offered an exit at net asset value (NAV) less costs,’ said Newell.

Although TPOU outperformed the S&P 500 last year, thanks in part to share buybacks, this was only the second time in 12 years this has happened. Over that period, the NAV return of 179% compared unfavourably to a 416% rise by the S&P 500.