Revealed: the trust managers putting their money where their mouths are

In the latest 121-page Skin in the Game Report, covering 298 investment companies and 1,445 chairpersons and directors, Investec Securities' research found that two-thirds of companies in the report met the target to have at least 40 per cent female representation on boards. 

It also highlighted a significant boost in the number of trust managers and directors putting their own personal money to work in the trusts they run, signifying they are aligning their interests with those of their investors (see below for more details).

In terms of hitting the Financial Conduct Authority's targets, a total of 217 companies - equating to 74 per cent of those within the scope of the research - met the regulatory target of having at least one woman senior board member.

Some 84 companies disclosed they had met the target of having at least one member from a minority ethnic background.

Enhancing transparency at Board and executive management level will help hold companies to account and drive further progress.Sarah Pritchard, FCA, 2022

The 2023 report has been compiled by Alan Brierley and Ben Newell, who have hailed significant progress towards diversity targets.

However, they highlighted that only 22 per cent (64 companies overall) could meet all three of the regulatory targets.

The research also named and shamed 13 companies that have all-male boards. This is a significant drop from 2010 - when the Skin in the Game report was launched.

At that time, the number of investment companies with all-male boards stood at 159. 

In the 2023 report, the authors said: "We believe the majority of these companies are challenged."

It listed the all-male boards as per the image, below:

Annabel Brodie-Smith, communications director of the Association of Investment Companies, told FTAdviser: “It’s been great to see the progress made by investment companies towards more diverse boards, particularly when it comes to gender diversity.

"The AIC supports diversity on boards and this topic has been a regular feature of our director conferences and roundtables."

It also has a website, called Pathway, which aims to encourage a wider range of people to consider becoming investment company non-execs.

But, as she commented, "there is still more work to do".

In 2022, the FCA set out its approach sets positive diversity targets for listed companies, stating that "If they cannot meet them, they need to explain why not".

These are within the FCA's listing rules.

The rules have applied to listed companies for financial accounting periods starting from April 1 2002, and the FCA will review the rules in two years’ time to make sure they are working and to check if the diversity targets are still appropriate. 

At the time, Sarah Pritchard, executive director of markets at the FCA said: "As investors pay increasing attention to diversity at the top of the companies they invest in, enhancing transparency at board and executive management level will help hold companies to account and drive further progress."

Skin in the game

As well as improvements in diversity, the Investec Securities research also praised those board directors and managers who were putting their own 'real skin in the game' and aligning investors' interests to their own through significant shareholdings. 

According to the latest report, there was a total of £4.2bn personal investment made by boards and managers, but the authors stated: "While this reported has highlighted real progress on several fronts, a significant majority of managers are still unwilling or unable to disclose 'skin in the game'."

While there is no regulatory requirement for managers to do so, the authors called it "disappointing" that this was the case.

Of those who have disclosed, the report acknowledged the "remarkable" shareholding of Bill Ackman and the rest of the management team of Pershing Square Holdings. 

This total shareholding is £1.37bn, which the authors called a "show of confidence".

Other known managers with more than £1mn personal investments include:

• Christopher Mills, who is a director of and manages both the Oryx International Growth Fund and the North Atlantic Smaller Companies trust, has put his own money to work in both companies
• Nick Train and Alistair Smith, who have £45.2mn in the Finsbury Growth & Income Fund
• Simon Edelsten, who recently announced his retirement from fund management group Artemis, who has a sizeable £16.5mn of his own money in Mid Wynd International.

Directors 

Overall there were 53 chairs or directors with a personal investment of over £1mn as at May 31, 2023, including Paul Pindar, founder of Literacy Capital, and Richard Pindar, chief executive of the family-owned Literacy Capital, Paul Read, manager of Personal Assets, and John Duffield New Star Investment Trust. 

Michael Lindsell, of Lindsell Train, has just over £7.9mn in the trust.

Overall, four of the Literacy Capital directors have put a lot of their skin into the game. 

The Rothschild family investment have a total of £549mn invested in RIT Capital Partners.

Only one of the 53 directors with a £1mn-plus investment is a woman: Jane Tuffnell, of the Odyssean Investment Trust, with a holding of £1.08mn

There were 15 company boards where no chairpersons had personal investments in the trust, and 11 of these trusts had chairpeople who had not made any personal investment in the past 10 years.

Insisting that everyone has skin in the game isn’t appropriate if it gets in the way of appointing people from a wider range of backgrounds.Annabel Brodie-Smith, AIC

Brodie-Smith added: “It’s always reassuring to see board directors and managers with a stake in their own investment companies, and the ‘skin in the game’ report makes fascinating reading as ever.

"Understandably, shareholders want to see the interests of the board and manager are aligned with their own, and substantial personal holdings are one way to signal this alignment."

However, she pointed out that it is important to recognise that directors’ financial circumstances can be different.

Therefore, she said "insisting that everyone has skin in the game isn’t appropriate if it gets in the way of appointing people from a wider range of backgrounds".

simoney.kyriakou@ft.com

Do managers having skin in the game and diversity targets matter to you and your clients? Have your say in the comments section below.