Investment trusts seek voluntary code

The investment trust industry is trying to clean up its act before regulators stamp out erroneous management practices in the sector beset by allegations of collusion.

Confidence in the sector has sunk after the exposure of dubious practices in split-capital investment trusts. Up to 50,000 investors have taken a hammering as shares in some trusts have been reduced to pennies and shares in 20 trusts have been suspended.

The Treasury Select Committee is meeting tomorrow to continue grilling the fund managers involved in the collapse of a number of trusts, including Chris Fishwick, of Aberdeen Asset Management, who has been at the centre of the FSA's investigation into the trusts.

The Association of Investment Trust Companies (AITC), which represents £39.2bn of the £53.2bn sector, is trying to drum up support from investment trust directors for a voluntary code of practice for the corporate governance of investment trusts.

"The industry has suffered a disaster in part of the split-capital sector," said Daniel Godfrey, the director general of the AITC. "Because of what's happened with splits, the integrity of investment trust boards has been brought in to question. The industry now has to take bold steps to put beyond question any doubts about the independence, integrity and competence of their boards."

A Government review of the role of non-executive directors is under way and could result in legal requirements being forced upon board directors. The FSA has also indicated it may seek to bring in formal regulations for running investment trusts as part of its investigation into split caps. In a pre-emptive strike to prevent rules it believes may become "obstructive or harmful to the ability of directors", the association is seeking responses from trust directors to set up a principles-based code to improve standards of corporate governance.

Mr Godfrey said: "We want to empower boards to make sure they act in the best interests of shareholders. Good corporate governance is about ensuring boards are constituted with the right mix of skills. We will come up with a blueprint of issues that need to be addressed, what questions need to be asked to make sure the board is contributing to shareholder value."