Principal Search
UK Investment Trust Companies
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Non-executives are particularly important to investment trust companies whose affairs are
managed by boards entirely composed of non-executive directors. Investment trusts are the
UK’s oldest form of collective investment vehicle and can trace their origins back to the 1880s
when Robert Fleming joined with other local industrialists to invest in the development of
the railroads in the United States. Today there are more than 350 investment trusts listed
on the London Stock Exchange. They do have a number of attractive features such as the ability
to gear and their closed end status means that they are less vulnerable to liquidity problems as
investors follow the investment fads that so often lead to ill-timed investment or disinvestment
from funds.
On the other hand, investment trusts have suffered from very poor press recently
– the split capital debacle; poor performance resulting from the fact that many investment trusts
held on to their gearing too long in the bear market; the fact that many trusts trade at deep
discounts to net asset value and the fact that they do not have a front end load from which to
pay commission to IFAs have all served to diminish their attractiveness to investors.
Nevertheless the sector does remain favoured by many professional investors, primarily
those working on behalf of private clients but in some instances, institutions too. The
fact that the affairs of the investment trust companies are managed by independent boards
is perceived as a significant advantage but the quality of those boards is obviously critical
if this advantage is to be maintained.
As with any quoted company, investment trusts are subject to the Combined Code and t
he Higgs Review but clearly the absence of executives makes investment trusts’ operations
somewhat different. For this reason, the Association of Investment Trust Companies (AITC)
has published its own Code of Corporate Governance to be used in conjunction with the Combined Code.
As the onus of corporate governance becomes greater, it becomes even more important that the board has
a range of skills and experience to carry out its duties and responsibilities. The AITC Code states
“The Board should aim to have a balance of skills experience, ages and length of service”.
Each company will have its own particular challenges and requirements but broadly speaking
boards should demonstrate experience in the following areas:
Investment
Regional/sector experience consistent with investment brief
Corporate Governance
Corporate Finance
Accounting
Legal & Compliance
Marketing of Investment Products.
On the publication of the Higgs review, many questioned where the new supply of non-executive directors would come from but Principal Search has consistently maintained that the supply of directors significantly outstrips demand. We now have a database of more than 700 highly credible candidates for investment trust non-executive director positions, the majority of whom have or are seeking to develop portfolio careers. Increasingly however boards are looking to recruit individuals who are still engaged in full time work and this is an area where potential candidates are in much shorter supply. Many high quality candidates amongst the recently retired have been surprised at just how difficult it is to secure non-executive appointments with investment trust companies, particularly at a time when remuneration is relatively low and the personal liability and workload associated with such appointments has increased.
Principal Search’s study of the remuneration of investment trust boards conducted at the end of 2003 established that the average remuneration paid to directors was £12,200 per annum but we expect that the update to be conducted at the end of 2004 will confirm that this has increased significantly over the year. Nevertheless it will still be very substantially below the remuneration paid to non-executive directors of other quoted companies.
In spite of the challenges, many directors of investment trust companies find their work stimulating and enjoyable. The financial rewards from such work are relatively small but nevertheless most welcome. Given the diversity of the trusts in terms of their investment remit, the range of candidates we seek on behalf of our investment trust clients is similarly broad. We are therefore always happy to hear from candidates who think they may have something to offer in this sector.
PRINCIPAL SEARCH LTD
62 Cornhill
London
EC3V 3NH
Tel: 020 7090 7500
www.principalsearch.com
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