Special Report on Investment Trusts: Manager not inextricably linked to the product: The psychology of branding can mislead, says Paul Durman

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IT IS sometimes easy to forget that investment trusts are listed companies in their own right. The fund management firms which are the public face of investments trusts often 'brand' trusts according to their investment manager - so that we have Kleinwort Emerging Markets, Fleming Claverhouse and Henderson Eurotrust. These names tend to obscure the fact that manager and trust are not inextricably linked.

Some investors fear that branding makes changing managers less likely in the event of bad performance.

Changes of manager are certainly rare, and with more than 200 investment trusts, one might expect that rather more managers were failing to come up to scratch.

But investment trust directors unhappy with the performance of their company often seek to replace the individual fund manager rather than the management group. As Robin Angus, investment trust analyst with NatWest Securities says: 'It would create a huge amount of bad publicity if (for example) Flemings were removed from the management of one of their trusts.' And management changes are more frequent than is apparent to most outside observers.

Paul Manduca, chairman of Henderson Touche Remnant (HTR), says that if the replacement of the individual manager failed to produce improvement, he would expect the trust's directors to take a stronger line. The boards of HTR's trusts, he adds, 'are moving towards having a majority of independent directors'. Henderson has adopted the independent liaison committee that Touche Remnant set up to allow representatives of its trusts to meet and discuss management issues.

Mr Angus would like to see higher standards of corporate governance and is unconvinced that AITC guidelines go far enough to strengthen trust boards.

He particularly dislikes boards structured in a way that includes directors who are either the managers' 'pals' or former managers of the trust. And he disapproves of employees of the fund manager serving on the board unless they have a specific responsibility for the trust.

Mr Angus is very keen that trusts should no longer 'clutter up the board', but instead have an independent chairman, who has no connection with the management group at all.