In the interest of shareholders

As Arsene Wenger contemplates life after 22 years at Arsenal Football Club, another set of managers are also on the cusp of change. April saw two investment companies unveil shake-ups in their management arrangements. First, the board of Schroder UK Growth announced the appointment of Baillie Gifford as its new manager, replacing the incumbent team from Schroder (the fund will be renamed); then, over at Invesco Perpetual Enhanced Income, Invesco Perpetual revealed it has resigned as investment manager of the fund.

In the case of Schroder UK Growth, the fund’s board was entirely open and honest about its motivations. It simply said that as the fund hadn’t performed as well as it had hoped under its existing management. Change was required. Baillie Gifford’s mandate will be to improve returns with a new approach to the portfolio based on a smaller, “best ideas” selection of stocks.

At Invesco Perpetual Enhanced Income, it was charges rather than performance that prompted the change. The board of the fund has reportedly been trying to negotiate a new deal on charges, but talks have reached an impasse and the fund manager felt it had no choice but to step down.

Now, in both cases, views will differ on how these situations have played out (just as one set of Arsenal supporters thinks Mr Wenger should have gone five years ago, while the other would prefer to see him stay).  Nevertheless, the story of these two funds is a positive one for retail investors.

That might not be immediately obvious, given that the upheaval at these two investment companies means uncertainty for investors who have holdings in them. The bigger picture, however, is that this is evidence the investment company model works: at both these funds, an independent board has taken the view it needs to take action on behalf of shareholders and moved decisively. Importantly, the entrenched interests that are so common in the asset management sector were nowhere to be seen in either case.

The governance structure around investment companies, set out by the fiduciary responsibilities assigned to boards under company law, can sometimes seem abstract or even irrelevant. What investors really care about, after all, is fund performance; the link between returns and governance is often far from obvious.

These cases, however, represent the proof of the pudding. These funds’ boards have thought hard about their duties to shareholders, decided those duties require them to make tough choices, and taken action accordingly.

If you’re not convinced, consider what would have happened at these vehicles were they to have been launched as open-ended funds. Can you imagine Schroder firing itself and bringing in a rival manager, however frustrated about performance it might have become? Could you see Invesco Perpetual walking away from one of its open-ended funds because some in the company felt its charging structures weren’t appropriate?

The answer is obvious, but it’s a crucial point. Anyone offering a product or service – in financial services or elsewhere - always talks about the interests of the customer being paramount. But very few businesses have a structure or process that formalises a bland and meaningless statement into something that actually delivers for customers. In investment companies, by contrast, you have exactly that.