‘The end is almost in sight’: Gravis’s William MacLeod and Baroness Altmann on cost disclosure breakthrough

First reading of Bill to remove AIFMD classification from investment companies will take place next week


“The end is almost in sight” for investment company managers, discretionary fund managers and wealth managers who have been campaigning to scrap restrictive cost disclosure regulation for closed-ended vehicles, according to Gravis’s William MacLeod.

Managing director MacLeod has been working closely with a number of professional investors, as well as Baronesses Bowles and Altmann, to remove the AIFMD (Alternative Investment Fund Managers’ Directive) classification from investment companies, which requires them to effectively ‘double-count’ their costs as they are listed on the stock exchange.

The regulatory requirements, which mean funds and trusts both have to supply KIID documents outlining their ongoing charges figures, have been hampering fund selectors’ ability to buy into trusts as it makes them appear artificially expensive, given investors buy the listed vehicles at ‘price’ and yet the charges are applied to their underlying net asset value.

See also: “Calls for judicial review into FCA as investment trust sector faces extinction

Last Thursday (9 November), Baroness Altmann successfully submitted a Private Member’s Bill to the House of Lords in a bid to free trusts of the regulation and, yesterday afternoon (13 November), Baroness Altman addressed the House of Lords. She also entered the ballot to ask a question in the House on cost disclosure, which was successful. Her Bill will receive its first reading on 22 November.

“It’s important not to get carried away,” MacLeod tells Portfolio Adviser. “A Private Member’s Bill does not have certainty of success. So, the emotion we should be feeling is one of hope, that the end of this situation is in sight – assuming all goes well.”

Baroness Altmann says the next Parliamentary step is to canvas support for her Bill. “The Bill builds on important work by Baroness Bowles and aims to exclude closed-ended quoted investment companies from AIFMD. It is unfortunate that they were classified as ‘Alternative Investment Funds’ in 2013 and this seems to be the root of the subsequent problems that have resulted in investors being driven away from some of the most important specialist investment portfolios, on the basis of apparently high fees that are misrepresented to investors,” she says.

During the question session at the House of Lords yesterday, MacLeod pointed out that Baroness Penn said the UK government will use the facilities provided by the 2023 Financial Services and Marketing Act (FISMA) to “challenge the status quo” with cost disclosure.

“To me, that means the Treasury is fully supportive of the moves that we have made,” he says. “Therefore, with the Private Member’s Bill, it is possible the government might choose to adopt it, take it forward and accelerate things. But perhaps that is me being absurdly hopeful and hoping for the best possible outcome – which obviously we can’t be certain of.”

Altmann adds that it was “heartening” to receive support from Baroness Penn. “I hope the government will support my Bill but also realise the importance of acting with the level of urgency that this situation clearly warrants,” she urges. “There is a crisis underway, and a resolution could be swiftly enacted if all parties agree.

“It would be a win for the UK’s listed investment companies and by extension, for many areas which the Chancellor has identified as targets for future domestic growth and energy security.”

First reading

The first reading of the Bill –  which is usually seen as a formality – will be the next step in the industry’s campaign to overhaul the regulatory requirement.

“I understand that Private Member’s Bills come in thick and fast, they are quite competitive,” MacLeod explained. “In many cases, they can quite easily get knocked out by opposition statements. We think, however, the nature of the changes we are proposing are so technical, that it is highly unlikely people will have a very specific reason as to why they don’t like it. There is little chance of that happening.

“So, subject to it shuffling through both houses, it then theoretically passes into law – which is a giant leap from where we are now. It takes about two months for this transaction to take place.”

For DFMs and wealth managers, the proposed changes will remove an “artificial brake” on their desire to use investment companies, given the disclosure regulations would have artificially inflated their published costs.

“Ever since MiFID in January 2018, it has been like running down the beach with a rubber tyre and a rope tied to you. It was such a drag,” MacLeod says. “When we get to New Year, that will be the fifth anniversary, which I think is pretty poor.

“Then, for fund managers running open-ended products, they have responded to the guidance issued by the Investment Association, which is a reinforcement of guidance issued by the FCA. They of course, will be able to publish actual costs, not synthetic costs, which we think is a very significant difference. When else in one’s life does somebody use synthetic money to pay for things?

“So for both parties it means that, once the Private Member’s Bill has progressed beyond where we are today, [DFMs] can choose to start investing in [investment companies], without fear of inflated costs in clients ‘portfolios.”

The issue transcends DFMs being able to tap into the benefits of investment companies for their clients. The UK economy relies on listed vehicles to provide funding to numerous businesses across the UK and, if a proportion of investors are unable to support the sector, Altmann worries it will harm the UK economy.

“The resulting decimation of share prices and drying up of funding, is damaging UK sustainable growth and undermining confidence in UK markets,” she says. “Therefore, I earnestly hope the Bill will pass through the legislative process as rapidly as possible.”

Wide discounts

The investment company space has faced significant headwinds over recent years, with a vast majority of them trading on historically high discounts to NAV. When asked whether the regulatory overhaul could cause these discounts to begin narrowing, MacLeod says it will mean “almost nothing for the investment companies on day one”, with the sector having to undo any damage caused over time.

“I think it’s possible that market makers and the market as a whole might look upon these companies with slightly more positivity. But I don’t actually anticipate that there will be a re-rating due to massive sudden demand,” he explains. “Because over the last few years, people have found other places to deploy their capital; they are not about to start selling those investments and suddenly move back into investment companies. I think it will take a little bit time for the memory of this debacle to wash through.

 “It has been an error. But it’s a 10-year-old error, and therefore, people in office today are not to blame. We are living with the consequences of what was decided back then. But now we’re at the point where we can fix it, we can progress and we can do so with a more positive frame of mind. That is really what this is about – it is about sentiment.”

That being said, the markedly wide discounts have led non-UK investors to keep a close eye on the investment trust space, with the view to potentially snap companies up at cheap valuations and relist them overseas.

“When things look too cheap to be true, then that is an opportunity – that is a concern. I think we will see a reaction, but I’d be a fool to try and call it. I can just see that there is an impediment towards sentiment on the sector,” MacLeod says.

Of course, the abnormally large discounts on trusts have been caused by a broad range of macroeconomic, geopolitical and market-based factors, as well as any regulatory concerns.

“I’m not pretending that this suddenly unleashes a huge torrent of cash. That’s not the point,” he continues. “But, if there is a ‘why not?’ reason then it has been found, we have identified it and our hope is that the Private Member’s Bill removes it.”

Back to our day jobs

After years of tireless campaigning, Portfolio Adviser asks what the passing of the Bill would mean for MacLeod and his colleagues.

“One thing it definitely does is remove the necessity for market participants and politicians alike to make so much noise about cost disclosure. We can all go back to doing our jobs, which is really what we’re here to do – to look after other people’s money,” he says. “I do feel emotional. I feel as though the end is almost in sight. It’s still a little bit gloomy. But you can all you can almost see the end of this.”

Another aspect that makes MacLeod feel emotional, is the fact a huge majority of those working in the investment company sector “absolutely have the client at heart and in mind” in all that they do.

“We all have relatives invested in our products. We all know what we’re doing this for. Everyone really, really cares,” he explains.

“And it’s not just about that, either. It’s about all the people who have invested with us. You are trying your best to do a good job and then, for some weird reason, from a regulatory perspective, you’re made to do a worse job than you know you can do. That is very frustrating because you have tried so hard to get it right.”


In relation to the proposed regulatory overhaul, the FCA has been relatively quiet on the matter, although they did agree to a Right of Reply request from Portfolio Adviser back in August.

A spokesperson at the time said: “Transparency about both costs and charges and risk form an important part of the regulatory framework, so consumers and those acting for them know what they are paying for.

“We do know that some disclosure requirements can be improved. We have already taken action and have committed to designing a new disclosure regime which will consider what the right way to disclose costs and risks should be. 

“Many of the detailed requirements about disclosure are legislative and will require the UK Government to make changes.”

To avoid the investment community encountering any potential undue restrictions in the future, MacLeod wonders whether there should be “an event that ought to take place with the FCA, where they have a greater level of market participation and engagement”.

“When you’re in the industry, you can see all the things that are going on and spot the things that aren’t so good. We all read the trade press, we are all in touch on LinkedIn. People in the industry are obviously closer to the ground and better at spotting these things.

“Perhaps there is a way the FCA can pick up the subtleties and of what is going on – from those people who are here and operational. A greater level of engagement probably wouldn’t do them any harm.”

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