UK Investment Trusts Face Pressure to Change Fee Calculation

UK-listed investment trusts are under pressure to change how they calculate their management fees, which could reduce them significantly. A decision in December by Greencoat UK Wind, the largest renewable energy infrastructure trust, to alter its formula to the lower of market capitalisation or net asset value could spread throughout the UK’s other 294 listed trusts.

This change could depress management fee revenues by 30 per cent — roughly £53mn, in the renewable energy infrastructure sector alone. The news follows two years where investment trust share prices have trailed their net asset values per share, leading to shareholder unrest. By the end of November the discount had reached an average of 15 per cent, not far from the largest amount seen since the global financial crisis. Excluding venture capital vehicles, these trusts hold £265bn of assets, according to the Association of Investment Companies. In particular, trusts which invest in renewable energy and other infrastructure have slid to deep discounts as investors question the stated valuations of their unlisted portfolios. UK Wind’s negative spread had widened to about 20 per cent. Just over 3 per cent of the 294 listed investment trusts currently use the lower of market capitalisation or NAV formula, say the AIC. Over two-thirds use NAV as a basis for management fees. Some asset managers have long campaigned for changes on fees. “The UK Wind thing is a big deal,” said Ben Conway, chief investment officer at Hawksmoor Investment Management, one of the vocal critics on this subject. “Everyone is talking about this. It’s about alignment with shareholders.” “We think this is a very positive development as it creates greater alignment between the company, investment manager and shareholders and results in a meaningful saving to investors,” wrote Ben Newell, an analyst at Investe

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