Should Trust Managers Attempt to Unseat the Board in a Dispute over Fees?

Investment trust directors should be independent of the manager. But sometimes the latter appear to think otherwise. Such is the case at Invesco Perpetual Enhanced Income Ltd (IPE), an investment company that invests in high yield bonds and other assets. It is managed by Invesco Perpetual. The latter have resigned as fund manager after a dispute over fees it is alleged. They have now also requisitioned a general meeting of the company to remove the trust’s Chairman, Donald Adamson, and director Richard Williams and to appoint two new directors. The two new directors who are proposed are currently directors of Aberdeen funds which is an odd coincidence – see below.

Invesco hold 17 percent of the shares and are supported by two other large institutional investors but a lot of the shareholders in this trust are private individuals.

The dispute over fees arose apparently because the trust wished to reduce the level of fees, and possibly remove the performance fee. The AIC gives the “ongoing charge plus performance fee” of 2.16% which is surely high for what is primarily a bond fund. Performance fees in trusts are also, and quite rightly, becoming unpopular with investors.

Historically the performance of this trust looks good but the company says it has received attractive offers from well qualified alternative managers. However the key question is whether it is morally right for a fund manager to challenge the board of directors in this way. How is that in shareholders’ interests and clearly there is a conflict of interest here. What is in the best interests of shareholders is surely for the board to decide, not the fund manager.

I have come across this situation once before some years ago when Aberdeen attempted to thwart the change of fund manager of a Venture Capital Trust (VCT) where the shareholders (including me) had caused a revolution that resulted in a change of board after a quite dire performance track record. I was not best pleased with that attempt although it was unsuccessful and the manager was changed.

My view is that fund managers should not interfere in this way and the FCA should introduce rules to ensure that trusts are truly independent and not poodles of the manager (a common problem in VCTs for example). The directors should be independent and threats to try and remove them by the fund manager should be treated with contempt. I hope shareholders in this trust will vote against the requisition.

Brewin Dolphin, a leading retail broker, has supported the board in resisting Invesco’s desire to retain a performance fee. Guy Foster, Head of Research, has been quoted in Citywire as saying Invesco should “leave the board to continue working to reduce fees and shore up the uncovered distribution for the benefit of shareholders”. Let us hope other retail brokers take the same stance.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson )

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