By Emma Wallis, News editor, Trustnet, 30 September 2024:
Investment trusts are charging unfair fees, according to Hawksmoor Investment Management’s Ben Conway.
Most fund managers and investment advisers base their fees on the net asset value of investment trusts’ underlying portfolios, but for trusts holding hard-to-value private assets, those valuations are subjective and can fluctuate wildly, he argued.
Conway, who is Hawksmoor’s chief investment officer, thinks it would be fairer for all investment advisers to charge fees based on a trust’s market capitalisation to align their interests with shareholders.
“Calculating fees as a percentage of a valuation figure that is so clearly subjective is simply a nonsense and creates horrific alignment issues for shareholders,” he stated.
Investment trust fees have been a hot topic of late, following their recent exemption from European Union cost disclosure rules. Conway’s argument concerns an unrelated point, however – whether charges themselves are fair, not how they are disclosed..
Three-quarters of investment trusts base their fees on NAV. This is a bigger problem for trusts invested in alternative assets given that their NAVs are calculated less frequently and subject to greater mark-to-market revisions. Nonetheless, Hawksmoor would like to see all trusts switching to fees calculated on market cap, even equity-oriented trusts whose portfolios are easy to value, to ensure alignment with shareholders..
James Carthew, head of investment companies at QuotedData, has a different perspective. “Our stance has always been that the best fees are based on the lower of market cap and net asset value,” he said. Just 4% of investment trusts do this currently, according to the AIC.
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