20 fund managers answer our ‘skin in the game’ question

interactive investor continues drive for more transparency and parity with the US Securities and Exchange Commission.

• What happens when you ask the fund manager face to face, rather than the fund management group? They open up, that’s what
• One fund manager claimed: “I think it is very important (to have ‘skin in the game’), you don’t poison people if you eat the same food”
• Responses from managers including Andrew Bell, Laura Foll, Hugh Young, Peter Spiller, Kirsty Gibson, Alex Wright, and many more

Since last summer, interactive investor’s ‘skin in the game’ campaign has been continuing apace.

Last June, ii wrote to the Financial Conduct Authority, calling for measures to be brought in similar to those in the US to increase transparency around ‘skin in the game’ (fund manager holdings in their own fund).

In October, ii published a poll of active managers of its Super 60 and ACE 40 rated funds, releasing ‘Skin in the Game’ disclosure from participating groups, covering 82 funds and investment trusts in total.

Groups representing 77 funds and investment trusts (94% of ii’s actively managed rated list constituents) said that fund managers had skin in the game, although 49 of these (60%) preferred not to say how much.

But what happens when you ask the fund manager directly, rather than the fund management group? They open up. ii’s editorial team has been personally quizzing a range of fund managers over the last several months on whether they invest in their own funds and investment trusts. Today, ii reveals 20 personal responses collected through a range of video interviews with fund managers.

Kyle Caldwell, Collectives Editor at interactive investor, explains: “The level of ‘skin in the game’ transparency in the US is miles ahead of the UK. Since 2005, the US’ Securities and Exchange Commission has required fund managers to disclose how much they invest in their own funds.

“Fund managers disclose by band rather than the precise amount. The bands are: none, $1–$10,000, $10,001–$50,000, $50,001–$100,000, $100,001–$500,000, $500,001–$1 million, and more than $1 million. In the UK, however, there’s no requirement for a fund manager to disclose whether they invest, let alone how much. Of course, having skin in the game does not guarantee superior investment performance, but transparency can help investors make decisions about their wealth.”

Moira O’Neill, Head of Personal Finance, interactive investor, adds: “It’s naïve to think eating your own cooking is a recipe for outperformance – nothing is as simple as that. But investors deserve to know if managers eat their own cooking or not, and our research suggests almost nine in 10 investors (88%) think disclosure should be mandatory. If it’s a no-brainer for the US to disclose, why not the UK?

“Nearly eight in 10 (77%) respondents said they would be more likely to buy a fund or trust if the manager holds a personal interest, presumably because it can be seen to align interest. However,11% of our research sample thought fund manager skin in the game can create a conflict of interest and encourage fund managers to take either too little or too much risk.”

Encouraging openness from fund managers published below:

Andrew Bell, chief executive officer of the Witan (LSE:WTAN) investment trust: “I think it is very important (to have ‘skin in the game’).You don’t poison people if you eat the same food. My personal holding is disclosed in the annual reports and having doubled in value since purchase, it’s worth more than six times my annual salary. So, I share both pain and pleasure when the shareholders do.”

Laura Foll, co-manager of Lowland investment trust: “I do, indeed. Myself and James Henderson (the other co-manager) always declare what we hold in terms of our shares in all three of the trusts that we manage in the annual reports. So, if anyone wants to know how much we own in any of the trusts, it is always there and we update it every year. I think it is really important. Quite a lot of my savings are in not just Lowland (LSE:LWI), but all of the trusts that I manage. So I’m right there with the shareholders in terms of that.”

Hugh Young, fund manager of Aberdeen Standard Asia Focus (LSE:AAS) investment trust: “Yes, fortunately I have been an investor from day one (26 years ago), so I have enjoyed the massive rise. I haven’t sold any shares since day one. I have from memory a little over 100,000 shares, which is a substantial part of my net wealth.”

Mark Slater, fund manager of Slater Growth and Slater Income: “I’m a very substantial shareholder in all of our funds, and always have been, and I think it’s incredibly important that fund managers do eat their own cooking. You wouldn’t go into a restaurant where the chef refused to eat his own food, and I think it’s exactly the same with fund managers.”

Kirsty Gibson, Baillie Gifford US Growth (LSE:USA) investment trust: “Yes, I do, and it is enough money that it matters to me.”

Clive Beagles, fund manager of JOHCM UK Equity Income: “Of course, it is my largest investment. I have got a spread of investments, as I don’t want to have all my investments in a single fund. The investments elsewhere are in other geographic regions, but (the fund) is comfortably the largest investment that I have and always has been”

Alex Wright, fund manager of Fidelity Special Values investment trust and Fidelity Special Situations: “Yes I do. When you look outside of the Fidelity share scheme that everyone at a senior level participates in, my ownership of both Fidelity Special Values (LSE:FSV) and Fidelity Special Situations combined would be my largest personal investment. I have tended to invest in the trust at times that it is at a discount and when it isn’t at a discount I have tended to invest in Fidelity Special Situations open-ended fund.”

James de Uphaugh, manager of the Edinburgh investment trust: “For all the funds which I’m involved in and I’m talking to customers on, I wouldn’t feel comfortable talking about the funds if I didn’t own a chunk of them. I own 43,800 ordinary shares (in Edinburgh (LSE:EDIN) investment trust), which in rough terms is about £260,000. I think it’s an important question frankly, and I think managers should own decent amounts of trust or the funds they manage.”

Matthew Tillett, lead fund manager of the Brunner (LSE:BUT) investment trust: “Absolutely, I do, yes. Ever since I started in this industry that has always been something that I believed in. I think it is an honour to do this job, and fund managers should do everything they can to align themselves with their clients. Investing in the funds that you manage is a clear and important part of that, so I have always done that and I always will do.”

Timothy Woodhouse, fund manager of JPMorgan Global Growth & Income (LSE:JGGI) investment trust: “Absolutely, it is important that all managers have skin in the game, and I speak for myself and the other two portfolio managers on the trust when I say that. The performance over a rolling three year basis also has an impact on what we are paid each year, and we very much believe that compensation should be tied to performance as well as having investments in the underlying vehicle.” 

Carlos Hardenberg, co-manager of Mobius Investment Trust (LSE:MMIT) (Super 60 rated): “Yes, Mark Mobius and I have not just been founding partners of the business, but also seed investors in our own strategy, and both of us have significant exposure, which is also visible in Bloomberg and other public sources.”

Peter Spiller, fund manager of Capital Gearing (LSE:CGT) (Super 60 rated): “Not just I, but all the team here have essentially all our money, all our financial assets in our funds. With the trust, I have - it's a matter of public record. I have quite a substantial stake. And the theory we have is that as the trust itself is very well diversified, you don't need to diversity outside of those funds. So essentially, we all have everything in the game.” 

Hugh Grieves, co-manager at Premier Miton US Opportunities (Super 60 rated): “Absolutely. And I think it’s great, I think fund managers should declare. I can’t see a reason why you wouldn’t want to invest in your own fund. It is the group of companies in America that I have the most conviction that anybody should be owning right now. So why wouldn’t I put most of my own money in my own fund?” 

Ollie Beckett, fund manager of TR European Growth Trust (LSE:TRG) (Super 60 rated): “It is my largest investment by far. I’ve been able to get some shares through renumeration from my job, but I also bought into it personally. So, as I say, it’s by far my largest exposure in terms of investments, and my personal wealth is very much tied into TR European Growth. I’m aligned very much with the investor base.”

Austin Forey, fund manager of JPMorgan Emerging Markets (LSE:JMG) investment trust (Super 60 rated): “I do. An element of my pay is deferred and a significant part of that is put in shares in investment trusts. So, I have certainly a big enough economic interest in the outcome of the trust to be well-aligned with the shareholders.”

Gervais Williams, fund manager of Diverse Income Trust (LSE:DIVI) (Super 60 rated): “Absolutely. My personal investment is really down to holdings in my own funds. That means that when things don’t go right I know why we have disappointed, but most particularly I have some hope that we will deliver some attractive returns and it is pleasing to participate in that. I also individually have a holding in our management company, which is also quoted. But aside from that I am not interested in investing in anything else, other than things like a home. But, apart from that, all my own capital is held in my own funds and the PLC that runs them.”

Mike Fox, Royal London Sustainable Leaders and Royal London Sustainable World (both ACE 40 rated): “Yes, I do. I have my pension in Royal London Sustainable Leaders and the Royal London Sustainable World fund as well. I also have my ISA money in Royal London Sustainable Leaders. I wouldn’t ask anybody to invest in something I wasn’t prepared to invest in myself. The vast majority of my savings and my wealth is invested in Royal London Sustainable Leaders and the sustainable range in general.

Claudia Quiroz, lead manager of the Climate Assets Fund (ACE 40 rated): “Absolutely. More than half of my savings are invested in the fund. It is not required in the UK to disclose (skin in the game) but in the United States the SEC has required that type of disclosure, that transparency, for many years. So It might be something that it would be very natural for us to disclose going forward.” 

George Cooke, fund manager of Montanaro European Income fund (ACE 40 rated): “I do. And in fact, everyone at Montanaro has skin in the game, from the CEO to the receptionist. A material part of our remuneration is invested in the funds that we manage and as a fund manager, three-quarters of your allocation there, as a minimum, has to go into the fund that you manage. We’ve got other incentive mechanisms too but I think the key point to get across is that we’ve all got skin in the game. We all work together to make these funds perform as well as they possibly can. We’re all incentivised to do that.”

Bill Ackman, fund manager of Pershing Square Holdings (LSE:PSH): “The employees of Pershing Square, the managers, own a little more than 25% of the outstanding shares of the entity, so we do view it as our personal investment vehicle in the sense that we have a very large stake individually.”

Notes to editors

*Responses were collected through a range of interviews from July 2021 through ii’s Fund Insider video series and in our Funds Fan podcast.

Interactive investor received responses from 1,888 website visitors between 2-4 June 2021 on their views on Skin in the Game.

The Bill Ackman quote is from a later interview than the others - in December 2020, but the half-year report in August did say the figure hadn’t changed: “The net economic share ownership of 25% of the Company by William Ackman, Nicholas Botta and other affiliates of PSCM remained unchanged from December 31, 2020.”