Investment trust investors might “not survive”, says Baroness Ross Altmann on the sector’s crisis
Richard Stone , Chief Executive of The Association of Investment Companies (AIC) , joined Baroness Ros Altmann to discuss the ongoing challenges and complexities facing the investment trust sector. Their conversation sheds light on regulatory issues leading to misleading cost disclosures. They also highlight the urgency in rectifying legislation, urging action to protect UK investment trusts from damaging consequences, stressing the need for informed investor decision-making.
Investment trust sector crisis?
“I'm working with a number of managers of investment trusts across the industry who are saying, they are not going to survive if emergency action isn't taken,” Baroness Ros Altmann discloses.
Baroness Altmann highlights a critical issue: the current regulatory environment mandates investment trusts to disclose certain cost figures that misrepresent what investors are actually paying. This misrepresentation can lead professionals to pull back from investing in these trusts due to perceived high costs, which, in reality, are not being incurred. This situation is exacerbated by regulatory cost caps and the drive towards "value for money," which is often narrowly interpreted as minimizing costs.
“So rather than making properly informed investment decisions, the current regulatory system is stopping that happening and is also undermining one of the really important sectors for UK financial markets and for future economic growth,” Says Altmann
The dialogue also touches on the unique advantages of the investment company sector in the UK, particularly its role in directing capital towards essential areas like renewable energy, infrastructure, and real estate. The structure of investment companies is well-suited to managing long-term, illiquid investments, offering a vehicle for diversification and potential illiquidity premiums to investors.
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Cost Disclosure
“It is the cost disclosure one. It is the most pressing issue.” - Richard Stone, says
The misapplication of cost disclosure rules, carried over from EU legislation post-Brexit, has placed UK-listed investment companies at a disadvantage, not just domestically but also in comparison to international counterparts. This regulatory mismatch has prompted a call for legislative and regulatory intervention to correct the distortions caused by current practices.
The discussion outlines various paths being explored to address these issues, including statutory instruments and a private member's bill. These efforts aim to exempt listed investment companies from certain regulatory frameworks that are ill-suited to their structure and operations.
Conclusion
The conversation between Stone and Altmann emphasizes the importance of ensuring that investors are provided with clear, accurate information to make informed decisions. It highlights the urgent need for regulatory adjustments to safeguard the future of the UK investment trust sector
This dialogue serves as a call to action for policymakers, regulators, and industry stakeholders to work together to resolve these regulatory challenges. By doing so, they can preserve the strengths of the investment company sector, enhance the UK's competitive position in the global financial market, and support the country's long-term economic and environmental goals.
“The title for today is The Future of Investment Trust. So whilst we've talked about some of the headwinds, we'll hopefully, if we can, overcome those and then get that message out there for investors and pension funds, in particular”. Richard Stones, concludes.?
For the full conversation watch here: Keynote: Cost disclosures with Baroness Ros Altmann