Reforms around the cost disclosure of investment trust that the sector has been clamouring for are “at risk of stalling”, fund manager Abrdn has warned.
Currently, institutions and wealth managers must ‘douple dip’ and disclose investment trust costs as part of their own costs, making the products look more expensive.
While this is also the case for open-ended funds, investment trusts are traded instruments which, campaigners argue, means their market values should fully reflect fees.
Christian Pittard, head of closed end funds at Abrdn has warned that the current rules on cost disclosures have “distorted charges on closed end funds compared to competitors both at home and internationally”.
While the investment trust sector had been hoping that the reforms would be rolled into last week’s Spring Budget, Chancellor Jeremy Hunt made no mention of them in his fiscal event.
Annabel Brodie-Smith, communications director of the Association of Investment Companies, told City A.M. before the Budget that it was a “great opportunity” for the Chancellor to remove the “misguided rules” on cost disclosures.
However, with no update in the Budget, Abrdn, which is the third largest manager of investment trusts globally, has warned that progress is at risk of petering out.
“Currently, the positive momentum from industry campaigners to solve the issue around the cost disclosure rules risks stalling,” said Pittard.
Reforms to the regulations reached a second reading in a private members bill in the House of Lords on 1 March, but with no movement since then, the sector has begun to lose hope.
“The closed end fund sector has weathered over one hundred and fifty years of market ups and downs on the global stage,” said Pittard. “It’s striking that the greatest challenge of recent times has been due to a technical issue closer to home – the UK’s interpretation of retained EU law.”
“Reforming UK capital markets cannot be done without solving this issue – the sector accounts for around 36 per cent of the FTSE 250, with two fifths invested in the long-term assets that the UK government is so keen for investors to support,” he added.
Abrdn runs the third oldest investment trust in the world, Dunedin Income Growth, which has been active since 1873.
In December, the firm announced it would be pouring six months worth of management fees, or over £30m, into its UK investment trust range to “demonstrate its commitment” to the vehicles.