Investment companies have independent boards of directors who have a legal duty to look after your clients’ interests as shareholders.
For an investment company, independence means that a majority of board directors must not be connected to the asset manager that manages the portfolio.
Led by a chairman, the directors meet several times a year and monitor the company’s performance. It is their job to appoint a fund manager to manage the assets, and they can replace the fund manager if performance is not satisfactory.
Other functions of the board include:
- Negotiating fees with the fund manager
- Communicating with shareholders through public announcements and general meetings
- Monitoring risks to the investment company
- Ensuring that the investment company’s assets are appropriately safeguarded
- Creating and implementing a policy for tackling the company’s discount if the investment company’s discount is currently too wide
- Deciding if and when new shares should be issued
Though the board controls the company, many important decisions will also require shareholder approval. Board members also have to submit themselves to re-election by shareholders at regular intervals.
Self-managed investment companies
Typically, the board will outsource day-to-day investment management to an asset management group. Abrdn, Baillie Gifford, BlackRock, BMO, Invesco, Janus Henderson, JPMorgan and Schroders all manage several investment companies, for example. They are contractors, while the investment company is the client. The board has the right to terminate their contract after an agreed notice period, for example if performance is unsatisfactory.
However, some investment companies are self-managed, meaning they employ their own staff to manage the investment portfolio. Again, these managers are overseen by the board of directors and answer to them.