How keeping it in the family can benefit shareholders
Investment trusts have been around for some 150 years – so it’s no surprise that many of the vehicles in this sector retain family connections dating all the way back to their inception.
Indeed, recent Association of Investment Companies (AIC) research shows that some of its member investment companies still have their multi-generational connections with some of the families, who remain major shareholders.
“These families are actively involved in the investment company management through non-executive directorships and many were actively involved in their launch,” the trade body states.
But what does this mean for investors? The AIC spoke to Alec Letchfield, chief investment officer at Hansa Capital Partners, which manages a range of different portfolios including the listed fund, Hansa Trust.
Letchfield’s vehicle has been affiliated with the Salomon family since the 1950s, and the Salomons retain a “significant” interest in the trust. Letchfield says this ensures there is “a full alignment of interests with other, external investors”.
He adds: “I’ve spent 20 years in the investment management industry, working within larger, institutional groups, which ultimately are focused on the growth of assets. At Hansa Capital Partners, our primary focus is on generating long-term performance with our biggest investor, William Salomon sitting at the end of the room. It creates a real alignment of interests that is fundamental to everything we do.
“We are about multigenerational, long- term capital appreciation, with a long- term investment horizon, which is not beholden to indices.The focus is on the preservation of capital, while at the same time putting money to work dynamically when opportunities present.”
Similarly, Personal Assets Trust (PAT) was launched by Ian Rushbrook in the 1980s, initially as a way of looking after his family’s own wealth, meaning the performance of the trust has a direct influence on the fortunes of his family.
Frank Rushbrook, Ian’s eldest son, was appointed as a non-executive director of PAT in July 2009 and, as at July 2015, remains the largest retail shareholder in the trust.
Rushbrook told the AIC:“It is very much a family affair with my mother, my wife and children, sister, niece, nephew, aunt and cousins all fellow shareholders. As you can imagine, Personal Assets Trust really does have a personal connection for me and the sense of responsibility is all the greater for that.
“In my opinion, a family connection on a shareholder register can be force for good in any company. Families provide continuity during periods of upheaval, can foster loyalty in a shareholder base, have longer-term investment horizons, are more risk averse and have specific views on issues such as dividends. Being an investor in PAT is to join a family, a family of like-minded individuals who can take comfort in the fact that their interests are fully aligned with those of the board through a shared ownership of the company and its risks.”
In 1932, Witan formed what is today Henderson Global Investors and sold its remaining stake in 1997 but Harry Henderson is chairman of the company and has a significant shareholding.
He told the AIC: “The Henderson family has been involved in Witan in one way or another over the entire 106-year life of the trust. Today, the family’s interest is relatively small as a percentage of the overall company but for some members of the family it still remains a core holding, as it is for me.
“The priority question for any director of a listed company is: “Are we acting in the best interests of shareholders?” and one is perhaps better reminded of the importance of this question as a board member with responsibility for a meaningful family interest, particularly if one wants to survive family gatherings.”
Annabel Brodie-Smith, communications director at the AIC, says some of the ongoing family connections are unique to the investment trust sector and benefit investors and the families alike.
She explained: “A number of AIC member companies have large family shareholdings, and it is perhaps no coincidence that a number of these companies have a capital preservation strategy. It is clear, talking to many of these families, that some of this direct involvement is not just about the money, but about family history and with it a much wider sense of responsibility – and that makes for something distinctive.”
Other trusts with family connections include Brunner Investment Trust (where the Brunner family still holds about 30% of the vehicle and non- executive director Jim Sharp is actually married to Isabel Mary Brunner, the great granddaughter of Sir John Brunner who set up the Trust in 1927); Majedie Investment Trust; Caledonia Investments; and RIT Capital Partners.
Investment trusts are companies that invest money in other companies and whose shares are listed on the London Stock Exchange. As with unit trusts, private investors buying shares in an investment trust are buying into a diversified portfolio of assets (to reduce risk), which is managed by a professional fund manager. Investment trusts differ from unit trusts in two important ways: they are listed on the stockmarket and so are owned by their shareholders and are closed-ended funds with a finite number of shares in issue. This means the share price of investment trusts might not reflect the true value of the assets in the company (known as the net asset value, or NAV) and if the NAV value of a share is £1 and the share price in the market is 90p, the trust is said to be running a discount of 10% to NAV. But this means the investor is paying 90p to gain exposure to £1 of assets. Investment trusts can also borrow money and use this money to buy investments. This is known as gearing and a geared trust is thought to be more of an investment risk than an ungeared one.
Everything you own: all your assets (property, cars, investments, savings, insurance payouts, artwork, furniture etc) minus any liabilities (debts, current bills, payments still owed on assets like cars and houses, credit card balances and other outstanding loans). When you’re alive this is called your wealth; when you’re dead, it becomes your estate.