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AITC proposes code to shake up split caps

The Association of Investment Trust Companies is publishing a draft code of corporate governance for the boards of investment trusts in the wake of the split-cap crisis.

The code, which is likely to become a requirement of AITC membership, proposes a series of measures which the trade body says will provide a best practice framework for trusts to follow in the future.

In an bid to counter allegations of divided loyalties, the code proposes that chairmen as well as the majority of the board should be independent of the trust&#39s manager and have no input as an adviser to the investment company.

It also proposes banning chairmen from serving on any other boards of trusts employing the same fund manager.

In the same vein, the code suggests that directors, who should be forced to disclose their employment, experience and other directorships, should be elected for a fixed term of no more than three years, with re-election based on open procedures.

It also proposes bringing in boards early in the trust&#39s development – a commonly cited excuse for splits directors failing to act is that their input was post-design – and full disclosure over matters in which the manager has discretion.

In particular, this would apply to levels of gearing and the performance of the trust. The draft code will be debated at the AITC&#39s directors&#39 conference on February 4.

Director-general Daniel Godfrey says: “The code deals with the special factors faced by investment companies, which are beyond the scope of the combined code and the Higgs review.”

Plan Invest joint managing director Mike Owen says: “You could mention horses and bolting but these are sensible measures. Trusts will have to become more transparent and accountable and that can only be a good thing.”


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