Banking

‘Skin in the game’ debate heats up on back of new research

However, as the debate heats up within the industry, there are also concerns that such a move could lead to tokenism.  

More ‘skin in the game’? interactive investor calls for US-style fund disclosure rules

A spotlight was shone on managers of both investment trusts and open-ended funds who came under fire last week as two groups called for them to have ‘skin in the game’.  

interactive investor wrote to the Financial Conduct Authority and the Financial Services Consumer Panel, calling for fund managers to say how much they have invested.  

Separately, Investec published its latest Skin in the Game report which showed boards and managers had a total of £3.39bn invested in the trusts they manage. However, 16% of board members still have no personal investment, which includes 20 chairs.  

“It is staggering to me that there are people sitting on these boards who hold no shares at all, and yet claim to be aligned with shareholders,” said Genevra Banszky von Ambroz, fund manager at Smith & Williamson. 

Investment trust boards moving away from ‘stale, male and pale’

Meanwhile, 41 chairs who have been on a board for at least five years currently have a shareholding valued at less than their annual fee. 

Alan Brierley, Investec analyst and co-author of the report, said: “A frustration is that there are still a lot of managers that are reluctant to disclose their own personal investment.” 

However, Brierley argued managers and board members can have “too much skin in the game”, whereby individuals who own too much of a company are in a “very powerful” position. 

This comes across quite apparently in the case of £283.5m JZ Capital Partners and £305m Boussard & Gavaudan, whose management have aggregate investments of £100m and £129m respectively. 

In both scenarios, while the managers have received material fees due to “high fee structures”, the investment trusts are trading at double-digit discounts to NAV. 

 Banszky von Ambroz said she prefers managers to have some of their compensation paid in shares, particularly if there is a performance fee, and board members should own at least a year’s worth of fees in shares.  

Currently, 51 investment companies have boards where all members have a shareholding of at least one year’s worth of fees.  

However, Brierley thinks it is too prescriptive to give hard and fast rules and the investment should just be a “meaningful amount”.  

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