Ready to lend a hand
Investment trusts may be a little cult-like, but UK authorised fund managers can learn a lot from them when it comes to the independence and structure of their boards, according to a new study of UK investment trust boards
Mutual funds have far overtaken their older investment trust cousins both in size and in the popular investor imagination; yet when it comes to corporate and board governance there is a lot that the “venerable” investment trusts can teach their younger siblings, according to The State of Investment Trust Boards 2018 study.
Undertaken by speciality funds corporate governance consultancy, UK Fund Boards (UKFB), this is a detailed analysis of the current set up of over 180 UK investment trust boards across a range of metrics.
These include board size, composition, independence and gender diversity. Investment trusts have been around for over 150 years, have a slightly old-fashioned image, but could hold several valuable lessons for UK fund managers as they navigate the next 15 months to meet the Financial Conduct Authority’s (FCA) requirements for better mutual fund board governance.
The study finds:
a. that on average an investment trust board has just under five directors (about the same for UK authorised fund managers);
b. 78% of the directors have just the single investment trust directorship for an industry average of 1.4 directorships;
c. An impressive 94% are independent (11% for UK AFMs);
d. Women make up 23% of these boards (17% for UK AFMs);
e. Directors have an average tenure of just over six-and-a-half years (6 years for UK AFMs).
Other findings show that, on average, directors fees are £31K pa, and 91% of investment trust directors have some shareholding in the trust of which they are a member of the board.
In the area of governance, there is no question that board independence is one area of expertise at investment trusts that could prove to be a useful crossover to mutual funds, as they will have to start complying with the FCA’s Asset Management Market Study’s requirement of increased board scrutiny and independence.
As part of the AMMS, UK authorised fund managers will need to boost their slate of independent directors, taking the number from the current estimated 11% to 25% of the board, or a minimum of two independent directors.
This the FCA estimates will require the recruitment of as many as 480 independent directors by the end of September 2019, and it will not have been lost on many that there is a large cohort of experienced investment trust board directors who will be more than happy to lend a hand.
The State of UK Investment Trust Boards 2018 study
In June 2018, the board composition of over 180 UK-domiciled investment trusts was evaluated across a range of metrics. The data came from multiple sources, including directly from the firms themselves, their annual reports as well as a range of other publicly available sources.
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