Split capital trusts told to cut dividend payouts

The trade body for investment trusts yesterday said some controversial split capital funds should cut dividends paid to investors to improve their faltering financial strength.

Daniel Godfrey, the director-general of the Association of Investment Trust Companies (AITC), has written to the chairmen of all split cap funds saying that some funds face "severe" problems.

Geared Income Investment Trust last Friday became the latest fund to raise the possibility that it might not be able to pay dividends to holders of income shares because it has breached its banking covenants.

Split capital funds have attracted criticism recently because they have an opaque structure and some of the trusts invest in each other in a so-called magic circle. The cross-holdings has exacerbated recent falls in the equity markets.

Mr Godfrey also urges split caps struggling to remain inside their banking covenants to try to reduce fees paid to investment banks and fund managers, by making more of their fee performance-related.

The AITC has persuaded 70 per cent of funds to disclose more details of their portfolios so that it can establish a risk ratings system.Split caps historically have been unwilling to disclose their holdings.