The investment trust row threatening your tax relief

Telegraph

4 days ago

The investment trust industry is something this nation should be proud of, offering investors exposure to a range of different assets in an easily tradable format. As listed companies with publicly traded shares, investors are never locked out of their capital, a feature not shared by the open-ended funds industry.
Of course, they must pay a premium to the underlying investments if that trust is particularly desired, or sell at a discount if it's out of favour.
This ability to buy and sell shares without reducing the capital available to the investment managers allows trusts to invest in less liquid assets, such as property and private equity.
This limited share capital has other benefits, too. Trusts are able to utilise gearing, borrowing money to invest alongside investor capital and enhance returns (or losses).
But perhaps one of the most important features of investment trusts is the independent board, a group of non-executive directors elected by shareholders to represent their interests. The appointed fund manager answers directly to the board, and in turn, the shareholders.
However, shareholders are not a homogenous group. Nor are boards. This ability to dissent naturally breeds contention and herein lies the cause of another defining characteristic of the investment trust industry – the row.
Over the past few months, this column has been keeping an eye on a developing situation at a comparatively small investment trust that will have important ramifications for shareholders.
With an upcoming vote due on August 13 that will set the future path of this company, Questor believes shareholders should be made aware of the situation, but how investors vote is their prerogative. Shareholders should note the deadline to cast votes is likely to be earlier if they hold their shares via investment platforms.
The Maven Renovar VCT, until recently the Amati Aim VCT, is in a tussle for control between the recently appointed investment manager and the previous one, with each side passionately committed to their cause.
The upcoming vote will ask investors to make their choice on either firing the entire board and appointing the previous investment manager, or continuing down the current path and rejecting this reversion.
Paul Jourdan, of Amati, is the previous manager leading the charge to be reinstated, and spent almost two decades running the vehicle. Over five years, as the board notes, he has underperformed, with a negative total return of -21pc, compared with the wider sector's -5pc loss.
However, as his supporters point out, over 10 years, the manager is the second best performing in the VCT Aim Quoted sector.
In a separate smaller company vehicle also managed by Jourdan, the manager has returned more than 900pc since 1999.
The board argues that his recent underperformance is proof he's not able to do the job any more, while supporters note Aim has been in dire straits over the past few years.
Since the board fired Jourdan, they have appointed their own investment manager – Maven Capital Partners – and implemented a new investment policy, which they describe as 'Aim Plus'.
It is these two issues that have drawn particular attention from disgruntled shareholders. While technically there is no requirement for the board to seek approval for these changes, it would not have been amiss to call an extraordinary general meeting to ensure they were acting in the best interests of shareholders when altering two decades' of trust policy.
Given this is an Aim VCT vehicle, many shareholders will be using the trust as part of their tax planning. There are extra considerations compared with other kinds of investment trusts, as some will be investing to benefit from the various tax reliefs offered by investing in Aim and VCTs.
Many investors will have to sacrifice these reliefs if they sell out of the vehicle early, meaning exiting the trust if they disagree with the changes isn't entirely straightforward.
'Aim Plus' will extend the remit of the trust to invest in unquoted companies, a policy that has already clearly divided shareholders.
In fact, investors have already made clear their displeasure. At the June annual general meeting, shareholders voted against the new investment policy and the re-appointment of every director, effectively firing the board. But a trust cannot be without a board, so the team have been retained until they are either reappointed in this upcoming vote, or a new board is found.
While above the historic average, less than 15pc of share capital was voted at the AGM.
For the interests of all shareholders, this scenario must not drag out any longer. Whether investors wish to continue with the Maven board and the Aim Plus strategy, or to revert to the Amati management and the original investment strategy is for them to decide. But on August 13 when the vote arrives, this column hopes a decisive decision from a large turnout draws this argument to a close.