The Association of Investment Companies held its annual Directors’ Conference on 6 March 2025. If you were imagining scenes of champagne sipping and back slapping, it could not be further from the truth. Directors take their jobs seriously and they know that there is a mountain to climb to stem outflows, narrow discounts, and fend off attacks from activists.

Saba looms large

Saba would probably be delighted to know that its spectre loomed large over the event, but less enthused to know that boards are sharing lessons from fighting off the first round of its attempts. It will not be able to bully its way to asset stripping the industry. As an aside, this week’s Lunch with the FT profile of Boaz Weinstein (behind a paywall) contains the line “I love punching a bully in the nose. That’s what I think I’m doing with closed end funds” which holds about as much credibility as his claim to be the saviour of ‘mom and pop’ investors.

There were some common threads that ran through the various presentations and panels during the event.

Is the FCA one of the biggest obstacles to the sector’s recovery?

The first is palpable anger and frustration with the failure of the FCA to understand the industry’s viewpoint on cost disclosures. What had seemed like real progress in this area was dashed last December when the FCA published a consultation on its proposed consumer composite investments (CCI) regime, which will replace some of the outdated European legislation that has been causing problems.

Fundamentally, the AIC and almost all the attendees at the conference that I talked to believe that, as listed companies are subject to all the regulation that this entails, investment companies should be outside the scope of CCI.

The AIC has some fallback provisions – that if we do fall within CCI then we should be subject to a tailored set of rules, and failing that, that the whole CCI regime is adapted to avoid misleading investors on costs. However, another speaker Alan Brierley – who has been an analyst working in the sector about as long as I have and is known for his plain-speaking style – was adamant that all industry stakeholders should be telling the FCA that exclusion from the regime is the only acceptable solution.

If you want some sense of the damage that the FCA is causing, you only have to look at discounts on investment companies investing in alternative assets. For the most part, these companies offer good asset backing, and covered double-digit and often partially government-backed yields, yet share price discounts to NAV in the 30s, 40s, and 50s are commonplace – we touched on this problem in my chat with GCP Infrastructure.

Richard Stone, chair of the AIC, shared some stats on the change in ownership of these vehicles. In 2022, wealth managers owned around 24% of the alternative assets sectors, by 2024 that had fallen to 17%. Private investors have bought some of this stock, but most of the buying is being done by institutional investors who are well-positioned to analyse and understand these businesses.

There is no logic to wealth managers selling stock that institutional investors think is attractive unless they are being forced to do so because of the cost disclosure rules.

Alternative asset trusts are waking up to the need to tackle discounts

It was interesting to hear from Andrew McHattie on the weekly show that he believes boards have now realised that these discounts are not cyclical (purely a product of rising interest rates), but structural. We should expect to see more strategic initiatives to tackle discounts, perhaps in some cases with encouragement from Achilles.

That suggests that the sector will shrink, perhaps dramatically. We are seeing it already in the property sectors, where this week we had two trusts (Supermarket Income REIT and Urban Logistics) decide to become self-managed companies – bringing them outside the scope of the CCI regime – and a bid for another, Warehouse REIT.

Saba’s activism has, for now, been confined to trusts that invest predominantly in equities. Part of its modus operandi seems to have been to target trusts with a high proportion of retail investors and a corresponding low turnout at company meetings. I firmly believe that the low turnout reflects the difficulty of voting shares held through platforms. That is changing for the better but a number of speakers felt it must go further. We are pleased that Richard Stone will be on the show in a couple of weeks, and I expect him to tell us more about the AIC’s “my share, my vote” campaign to improve shareholders’ rights.

Another point that Richard picked up on and one that was fleshed out later in a discussion between himself and Dame Julia Hoggett (the chief executive of the London Stock Exchange), was the need to reinvigorate public interest and understanding of equities and active management. We think we have it bad, but over the past three years there have vast outflows from actively managed open-ended funds too.

I really welcome the debate about the future of tax-sheltered investing – through ISAs and pension funds – that has been gathering pace in recent months. I am in the camp where I cannot see the logic in the government actively subsiding holding cash deposits or investment in overseas assets. I am not suggesting that governments should mandate where you invest, I just do not see why we should not restrict the tax advantage to investments that actually benefit the UK economy. Richard also pointed out the confusion that the proliferation of different types of ISAs is creating.

Dame Julia won me over when she questioned why regulators put more hurdles in the way of investing in equities than crypto. She also tackled the thorny issue of stamp duty, suggesting some form of tapering of its effects that would not leave a gaping hole in the government’s stretched finances.

Prevention is better than cure

Alan’s passionate presentation tackled areas where he feels the industry is failing but also offered hope for the future. His feeling is that Saba is a symptom of the industry’s ongoing challenges and I agree. He thinks that a ‘win’ for Saba might entice other US activists. That is why we must try to ensure that it does not get one. Alan suggests that prevention is better than cure, and that boards need to double-down on discount narrowing efforts – again I support this view.

An ex-colleague of mine – Lazard’s Andrew Lister – talked about his constructive approach to activism. He made the point that as a discount-driven investor, his end goal is not to liquidate or open-end the trusts he buys, but rather to reposition and make them more attractive to investors. He highlighted the high cost of launching trusts and the associated logic of trying to repurpose failing trusts. He also observed that whenever a trust launches a strategic review, it tends to be inundated with interest from management teams, many with innovative and exciting investment propositions. Many management houses want to run closed-end funds.

My gut feeling is that the sector is at the low point of a natural cycle of boom and bust. It would help no end if the FCA stopped trying to kill it off, but we have endured worse crises in my career. Hopefully, the mood at the 2026 conference will be a lot brighter.