A few months ago I came across an interesting report that examined which managers have the highest personal stakes in their funds. It is an important issue because those with a considerable exposure have an added incentive to ensure that they work in their investors’ best interests, yet you rarely hear anything about it.
The analysis by Canaccord Genuity is called Skin in the game and it focuses purely on investment companies. According to their research, there were 46 managers or management teams with a personal investment in excess of £1m on 4th December 2014. By far the biggest of these was Lord Rothschild and his daughter Hannah who had £155m invested in RIT Capital Partners (RCP).
RIT began life as the Rothschild Investment Trust and was set up to manage part of the wealth of the UK branch of the Rothschild family. It was listed on the LSE in its current form in 1988 with net assets of £281m. The fund aims to deliver long-term capital growth, while preserving shareholders’ capital. Over the intervening 27 years it has increased its asset base to £2,422m and generated an impressive average annual return of 12% per annum.
Second on the list is the North Atlantic Smaller Companies Investment Trust (NASCIT), where the manager, Christopher Mills, owns shares worth £65.29m. The fund mainly invests in smaller companies based in countries bordering the North Atlantic Ocean. Mills was
appointed in 1984 and is also the Chief Executive of the company, but this hasn’t stopped the shares trading at an average discount to NAV of around 20% in the last year despite having a share buy-back programme in operation.
Another example highlighted by the report is Third Point Offshore Investors (TPOG), which is a feeder fund for a hedge fund of the same name. Daniel Loeb, the manager, owns a hefty stake worth £63.6m. After a disastrous first year when the shares lost two-thirds of their value (due to the 2008 financial crisis) they have come back strongly and in the last 5 years are up over 100%.
The better known investment trusts on the list are Caledonia Investments (CLDN), Scottish Mortgage (SMT), BACIT (BACT), Fundsmith Emerging Equities (FEET), Lowland (LWI), Monks (MNKS) and the Finsbury Growth & Income Trust (FGT).
There is far less information available about open-ended funds, although some managers voluntarily disclose their personal holdings. Notable examples include: Terry Smith, who has more than £50m invested in his Fundsmith Equity fund in addition to the £5.5m in his Fundsmith Emerging Equities investment trust; Neil Woodford, who is reported to have invested his entire pension in his Woodford Equity Income fund; and Mark Slater, who is quoted as having almost all of his personal pension in his 3 funds, Slater Growth, Slater Income and Slater Recovery.
Investing in a fund where the manager has a large personal stake doesn’t guarantee market beating performance, but it does provide extra reassurance and helps to ensure that the man making the decisions is acting in your best interests.