Yesterday I took part in September’s Best Practice Closed-end Funds Forum. The topic of this month’s discussion was the role of the investment company board and whether it adds value for shareholders. If you didn’t get a chance to listen live, you can hear the replay by clicking 'Play' below.
My very first question to the panel was one that had been sent to me by an adviser ahead of the event and it demonstrated well the level of cynicism that still exists about the role of the board. The question was along the lines of ‘isn’t being a board member just about meeting up four times a year for a good lunch?’ I hope that after listening to the session, that same adviser has become a little less cynical.
The composition of boards has improved dramatically in the last decade. It’s had to, not least because of the regulatory changes that were brought into effect in the early part of the noughties. Every board member must justify their position on that board, and bring the right skills to the role. It’s not enough to be a jolly good chap who went to the right school or university. Nor is it ok to have a board that comprises just former fund managers. The board’s responsibilities extend far beyond making sure the investment manager is doing a decent job.
It was clear from our panel discussion yesterday that being on the board is not about nice lunches. My panellists were very passionate about their respective trusts and don’t take their responsibilities lightly. Hugh Aldous recounted his tales of trudging up and down the country to talk directly with shareholders – both existing and potential, as well as the depth of detail that is covered in a board session.
Scott Dobbie talked of the difficult times in Edinburgh Investment Trust’s history (EDIN) and the two management changes, in 2003 and then again in 2008. It’s not an easy decision to sack a fund manager on behalf of £1 billion in shareholder money and Scott gave some insight into the board’s deliberations at the time.
Gill Nott highlighted a more recent example of shareholder engagement – the change of investment strategy at Martin Currie Portfolio (MNP), now Martin Currie Global Portfolio. She cited the importance of a board looking at the competition, as well as the need to ensure that a fund is meeting the needs of shareholders. Whilst a fund shouldn’t see regular changes to investment policy, the closed-end structure does allow more flexibility to move progressively as the world around us changes.
The tenure of a non-executive director is an emotive topic and there are mixed views on whether a long service is good or bad. Peter Arthur made the observation that, as chairman of Aberdeen Asian Income (AAIF), the bigger challenge is to ensure the board works well together as a unit. Given there have been no changes to that board since the fund’s launch in 2005, he seems to have achieved this to date. But he’s not blind to the fact that boards need fresh blood. Diversity is also critical and not just gender, but across skills, nationalities and backgrounds.
Then there’s the view of the asset manager, represented yesterday by James Saunders Watson of JPMorgan. He stressed the importance of working closely with the board, as a firm, through good times as well as bad. He also made the point that changing manager is expensive and so to appoint a new asset manager isn’t always the best solution for the shareholders—often it can be fixed internally. Given the change of named manager on six of JPM’s closed-end funds since 2008, his is a voice of experience.
These are just some of the topics we discussed yesterday. Without doubt, there is room for improvement on some boards and we’ll be looking at this in greater detail in our qualitative ratings reports. I’ll let you make your own mind up on whether you think the closed-end fund industry is still about ‘jobs for the boys’ but I’d urge you to listen to this webinar before doing so.
A scheduling error meant we got cut off after 45 minutes instead of being allocated the full hour we usually have. I didn’t get to ask the audience to vote on a simple question so I put it to you now—please share your answer in the comments section below this article: Do you think an independent board adds value for shareholders, or is it just an extra cost burden?
