I have enjoyed knowing Chris Gilchrist for a long time but there were a number of points in his article, “IT issues that need addressing” in the 21 November issue of Money Marketing that were misinformed.
We’re the first to admit that there’s a wide divergence in investment company charges, but many investment companies in the mainstream sectors have charges which are competitive with open ended funds and below 75bps.
Secondly, we believe the fairest way of comparing performance is to look at the share price of investment companies as these are the returns an investor receives.
Would advisers prefer that we ignore any discount fluctuations and the impact they have on investors’ returns? I doubt it but we do publish both NAV and share price figures so advisers can look at both figures.
On gearing, it’s a structural feature of investment companies – yes advisers should understand what impact it has on performance – we’ve been busy training on this and that’s why many companies explain this more fully in their report and accounts.
As for the independence of the board – well boards have been reducing their charges and this year ten investment companies have abolished their performance fee.
Fourth, the Association of Investment Companies is a trade association not a regulator. Our offshore members are well regulated and have to comply with company law, the listing rules and other regulations like our UK members.
For many offshore companies the closed ended structure is providing access to illiquid asset classes like property and infrastructure which are proving popular, with the current strong demand for income. There are also plenty of big well-known investment companies in the retail sectors.
Currently advisers’ clients make up less than 1 per cent of investment company shareholders, whereas institutions, wealth managers and direct investors all have significant holdings in investment companies. So finally we can agree with Chris – investment companies should have a bigger role in advisers’ portfolios.