Investment trust fee system stirs 'unease'

CONCERN is growing among investment trust professionals that some trusts capitalise investment management fees and mislead investors into believing the management charges are lower than they are.

A report commissioned by the Association of Investment Trust Companies from Touche Ross, the accounting firm, has found that more than one-fifth of trusts add at least part of the cost of management to capital reserves.

The Touche survey highlighted 50 investment trusts that capitalised fees. John Cornish, the report's author, said the practice was almost unheard of five years ago but is growing.

Richard Green, an investment trust specialist with stockbroker Allied Provincial, has highlighted the capitalisation of fees. In research to be sent to the firm's clients this week Mr Green says: 'This has been causing us increasing concern and we are decidedly uneasy about it.'

The Touche report pointed to two trusts that charged to reserves all the costs incurred in managing funds. Both funds, First Philippine and the Hong Kong Investment Trust, are managed by Jupiter Tyndall.

'More commonly, trusts that apportion fees tend to charge between 50 and 75 per cent of the total to capital reserve,' the Touche report said. In this group are trusts sponsored by Robert Fleming, Edinburgh Fund Managers and John Govett.

Ernest Fenton, director-general of the AITC, said the association has a working party examining the presentation of investment trust accounts.

Mr Green said that consumers are entitled to be able to identify the exact charges 'without turning the accounts upside down.'