In the spotlight: Association of Investment Companies
Interest in the normally sleepy world of investment trusts has soared lately, following the high-profile launch of Anthony Bolton’s Fidelity China Special Situations fund, the FSA’s crackdown on commission payments and the European directive that could have spelled disaster for the industry.
The 140-year-old sector was in danger of being legislated out of existence in 2009, when the European Commission drew up hasty proposals to tighten regulation on hedge funds and private equity in response to the financial crisis.
Ian Sayers, director-general of the Association of Investment Companies (AIC), explains: “When originally proposed, the Alternative Investment Fund Managers directive (AIFMD) could have been very damaging for private equity investment companies.
“The ‘one-size-fits-all’ approach failed to recognise the benefits of investment companies, whose closed-end structure makes them ideal for holding illiquid asset classes like private equity, while providing liquidity for investors through the stock market.”
He states the AIC is hard at work on a number of different campaigns concerning industry regulation – with the AIFMD and the Retail Distribution Review (RDR) being the main two areas of focus.
“We are not for or against regulation. You would be mad not to want a world with regulation in it, but you have to get it right and getting the balance is so tricky,” he added.
Established in 1932, the AIC itself has been through a number of changes.
It was founded as the Association of Investment Trusts, but quickly renamed as the Association of Investment Trust Companies (AITC) to reflect the fact, Mr Sayers explains, that the business wasn’t a trust.
“We are not a legal trust, a unit trust is a legal trust, but we are a company. We wanted to make sure our members and the outside world knew that we are a company, we do have a board of directors and we recognise that is an important part of what we do,” he says.
As most new closed-end fund launched in the mid-2000s were offshore-domiciled, non-investment-trust companies, the body changed its name again last October to the AIC, to represent the full range of constituent members.
According to Mr Sayers, this was necessary to reflect the changing nature of the closed-end investment fund sector.
The simple fact of the matter is that, say, a decade ago the vast majority of closed-end investment funds listed on the UK stock market were traditional, equity-based investment trusts, although even then some offshore funds, usually concentrating on individual emerging markets, were beginning to appear.
Today there is a significant body of closed-end investment companies that are not investment trusts, and have no intention of becoming so. He explains: “They are not investment trusts technically because the definition is UK-specific, so they were being referred to as ‘investment companies’ and we were then faced with an issue because we wanted to attract membership from these offshore companies, which we couldn’t have done if it appeared as though we were only representing investment trusts.”