Guest blog by Frank Buhagiar
“I’ll be back!” Those words may have been made famous by Arnold Schwarzenegger in the iconic movie The Terminator, but they could soon be synonymous with Daniel Godfrey, at least in the world of investment trusts. For Mr Godfrey said he would be back after he quit his role as Chief Executive of the Investment Association, the UK’s asset management trade body, following clashes with the body’s members over the transparency of fund costs and charges. True to his word, Mr Godfrey is back. This time with his very own investment trust.
Subject to successfully raising £125million, The People’s Trust will list on the London Stock Exchange on 17 October 2017. It is being launched as an alternative to short-termism, Mr Godfrey’s big bugbear, which he believes blights not just the asset management industry but also the wider economy. Mr Godfrey said The People’s Trust’s focus will be on “long-term, sustainable wealth creation without the short-term pressure that plagues the investment chain. Short-termism may be caused by profit risk and career risk but it has done enormous damage to investor returns and to the potential for long-term investment to make the world a better place”.
According to the recently published prospectus, The People’s Trust is targeting a 7% return p.a. net of costs over a seven year period at an assumed inflation rate of 2%. It intends to achieve this by not following a benchmark and investing in a handful of already selected third party funds. Around 20% is to be allocated to green energy via an investment in London-based hedge fund Lansdowne Partners, an investor in clean energy manufacturers and operators. The other funds include a UK smaller companies fund run by Artemis Investment Management; pan European exposure provided by French asset manager Comgest; First State Investments will manage the Asia-Pacific including Japan allocation; while JO Hambro Capital Management will invest in global mid and large caps. In keeping with the long term theme, all the fund managers have been signed up to seven year contracts instead of the industry norm of three years, presumably to encourage them to have the courage of their convictions and not overly worry about short term price movements.
Outsourcing does mean The People’s Trust is not the cheapest: the ongoing annual charge will be 1.07% of invested assets. That hasn’t put off Mr Godfrey and his fellow members of the Board, who will be putting their money where their mouths are: they will be investing a combined £1.5m at launch; while Mr Godfrey himself plans to waive half of his £275,000 annual CEO salary for two years, or until the company’s net asset value reaches £250m.
As mentioned earlier, The People’s Trust is not your run of the mill investment trust. Reading through the prospectus, it’s clear that this fund looks to be fairly radical, and shake up the investment world:
- An initial 1% of the fund (5% max.) will be allocated to Social Impact Investment targeting modest returns from investments, whose purpose is to have an impact on social deprivation, initially in the UK;
- Investee companies will be encouraged to stand up to pressure from shorter-term investors and markets and to invest in their own long-term sustainable futures: “We believe that this will lead to better long-term returns for our shareholders; to a better impact on society through greater investment in people, innovation and R&D; better supply chains and support for communities; more concrete steps by companies to ensure protection of the environment; a principled focus on pay inequality, diversity and fair tax policies; and greater integrity in lobbying activities”;
- And for good measure no performance fees or executive bonuses will be paid to Portfolio Managers to remove the risk of focusing on short-term performance rather than long-term returns
An ambitious to-do list for sure and only time will tell how The People’s Trust fares. Arguably the true success of the venture will be determined by the response of the fund management houses Mr Godfrey took on during his time as CEO of the Investment Association. Will they feel obliged to be overtly more long term? Imitation after, after all, sincerest form of flattery.