Speaking at Portfolio Adviser’s Expert Investor: Investment Trusts event, Beckwith said that the changes seen over the past few years are meaningful and the direction of travel is clear.
“Boards are noting the changes in the external landscape, they are assessing their own relevance within the investment industry and they are seeking to adapt to these new pressures. This is both necessary and healthy for the sector,” he said.
According to Beckwith one of the areas where evidence of this change is clearest is in the realm of management fees.
“Over the last eighteen months, 80 investment trusts have reduced their fees,” he pointed out, “either by scrapping performance-related fees, reducing their base fees or capping costs – in 2015 alone six investment trusts have announced the scrapping of performance fees.”
Much of this, he said can be attributed to pricing transparency that RDR has brought to the open-ended fund space. The “overnight” price advantage erosion as open-ended fees have come down has “ stiffened the backs and boosted the negotiating power of trust boards in their discussions with asset managers.”
The other area of change has come in the area of activist investors, who are wading into performance issues at lower levels of discount than they have done in the past.
As a result of these changes, Beckwith said, he expects to see continued pressure for change in underperforming general UK and global equity trusts, either from activists, or from shareholders or from the boards themselves. As well as a move toward mandates becoming more multi-asset focussed in order to achieve less volatile performance.
“This may finally mean some mergers in order to reach critical mass,” he suggested, but admitted there remain reasons boards may choose not to go down that route.
Other likely changes he said, will be more emphasis on income and a steady stream of dividend payments as a solution for investors post pension deregulation.
And he added: he expects to see continued downward pressure on fee structures.
“Boards should see themselves as a very large institutional client of the asset manager, and negotiate fees on that basis, in which case there is still a fair way for fees to fall. In the low return world that we all now expect, cost is the only certainty and it has negative alpha!”
