But it happened this week, as some 20 directors across four venture capital trusts (VCTs) collectively decided to sack their funds' investment manager in what appears to be a shameless bid to save their jobs. Given that independent trust directors are appointed for the sole purpose of looking after their shareholders' best interests (not their own), this will be a hard decision to justify when the regulator comes knocking at their door.
Unlike unit trusts and other open-ended funds, VCTs and investment trusts are not owned by the fund management companies. So, if their performance lags, their independent directors have the right to demand changes and, ultimately, sack the management. Although this is seemingly what transpired this week - as the directors of Murray VCTs 1, 2, 3 and 4 replaced Aberdeen Asset Management with Close Brothers, blaming Aberdeen's poor performance - the truth is far more straight forward. For almost nine years, the Murray VCTs were consistently the worst performing trusts in the sector, in which time the funds' directors did nothing to turn the tide.
After some pressure from shareholder groups last year, Aberdeen (not the directors) finally took the initiative and sacked its long-serving fund manager, John Simpson, replacing him with the well-respected private equity guru Bill Nixon. Since then, things have been looking up. And while Nixon and his team may have a tough job ahead, they are surely the right men for the job. But the twist came in one final Aberdeen proposal. To save on costs, it decided to look at merging the four funds - a move that would be great for investors, but would see most of the directors lose their jobs. No sooner had this proposal hit the table, than the 20 directors were clicking their heels and switching the management contracts elsewhere.
After stomaching nine years of underperformance, and not lifting a finger, we're now supposed to believe that the directors suddenly developed a conscience (personally, I'd sooner believe Elvis is alive and well and living in Peckham). But even if this was true, its decision to sack Aberdeen only months after it made a number of improvements to the funds' management simply makes no sense.
While Tuesday's announcements from the four trusts boasted a "unanimous" decision from the directors, it was surely no coincidence that one director resigned from two of the boards the next day "on a point of principle".
Although the Murray trusts may have only a few hundred investors, this is yet another example of bad practice in the VCT and investment trust sectors, much of which continues to operate through the old-boys' network. While many investment trusts continue to underperform, very few boards are willing to rock the boat and change managers. And when they do, it's inevitably for all the wrong reasons.
While the Murray directors may get away with what appears to be blatant self-preservation, I hope their decision is subject to intense regulatory scrutiny. It's easy to understand how the financial services industry has such a bad reputation.Reuse content