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• HOUSE OF LORDS WILL DEBATE LEGISLATION TO SAVE UK INVESTMENT COMPANIES AS INVESTMENT TRUSTS HIT BY NEW WAVES OF SELLING.  
• Second Reading of Private Members’ Bill tomorrow has cross-party support and could offer quickest legislative route to revitalize sector and stop further damage.
  
• Chancellor wanted urgent change but Regulators have failed to deliver so Parliament is being asked to take back control as quickly as possible.
  

 

 Summary of Main Points:

• Tomorrow, 1^st March, House of Lords will debate important legislation to help rescue UK investment companies from unwarranted selling.
• Chancellor asked FCA to introduce urgent remedy but they have not done so.
• House of Lords debate tomorrow will challenge FCA claims that it cannot do more without legislative change.
• Investment companies support several vital areas of the UK economy and markets and make up over a third of the FTSE250, so their weakness affects us all.
• UK listed investment companies are mostly specialist portfolios of real assets, supporting long-term UK sustainable growth, infrastructure and illiquid small growth businesses.
• Pension funds want and need to diversify and investment companies offer unique access to ready-made specialist portfolios of less liquid sustainable growth assets which Government wants them to buy, but they have been forced to invest overseas, not here.
• The sector is being decimated by measures supposedly designed to ‘protect consumers’ but emphasis on finding ‘low charge’ investments has misled consumers instead.
• Flawed charges figures have caused retail investment platforms, such as Fidelity, to block access to UK investment trusts, or misleadingly report exaggerated consumer costs.
• Regulatory guidance has created UK market dysfunction while no other country has hobbled its investment companies like this.
• The FCA is breaching its statutory obligations to ensure orderly markets, maintain international competition, promote growth and sustainable investment in financial markets and is not upholding its own Consumer Duty rules.
• The Bill tomorrow is a short form measure to correct regulatory errors that have had increasingly damaging consequences over time and revitalize UK investment.

 

Tomorrow, 1^st March, House of Lords will debate important legislation to help rescue UK investment companies from unwarranted selling: Our Private Members’ Bill, calling for urgent changes that will protect consumers and ensure the FCA can uphold its statutory duties, will have its Second Reading. It has cross-party support and could offer the fasted way for the UKs important investment trust sector to be rescued from flawed regulations that have forced investors to sell on a false premise. It has been drawn up with major input from Baroness Sharon Bowles, legal experts from HSF and industry leaders.

Chancellor asked FCA to introduce urgent remedy but they have not done so: In his Autumn Statement, the Chancellor asked the FCA to ensure it introduced urgent measures to stop investors being misled about the costs of holding listed UK investment companies. Sadly, after much eager anticipation, the ‘forbearance’ that the FCA came out with last November makes absolutely no difference in the market. Discounts narrowed somewhat late last year, as investors were hoping for relief, but they have had to start selling again, despite ever-widening discounts to asset value.

House of Lords debate tomorrow will challenge FCA claims that it cannot do more without legislative change: We are not sure the FCA is correct that it must await new regulations and this will be discussed in the Lords tomorrow. It seems to us that it is only the FCA’s unique interpretation of the retained EU laws which needs to change. No other country has interpreted the rules as we have, so our own Regulators are uniquely disadvantaging only UK listed investment trusts and REITs. Meanwhile, it has become clear that further Consultations on the Government’s currently proposed regulatory measures may not actually change anything before an Election. So this Bill might also offer quicker relief.

Investment companies support several vital areas of the UK economy and markets and make up over a third of the FTSE250, so their weakness affects us all: The selling pressure that has hit investment company share prices hard, is also damaging wider UK market valuations and creating unwarranted, damaging international underperformance, as investment companies are over a third of the FTSE250. Investment trusts are a long-standing British success story democratising investment for small savers, and delivering excellent returns.

UK listed investment companies are mostly specialist portfolios of real assets, supporting long-term UK sustainable growth, infrastructure and illiquid small growth businesses: The UK investment company sector has reinvented itself to expand into specialist management of important portfolios that are crucial for UK long-term and sustainable growth. Because of their exaggerated so-called consumer charges, investors have been forced, many reluctantly, to abandon UK listed investment companies. This weakens UK long-term growth and starves our economy of much-needed capital investment.

Pension funds want and need to diversify and investment companies offer unique access to ready-made specialist portfolios of less liquid sustainable growth assets which Government wants them to buy, but they have been forced to invest overseas, not here: UK institutional investors such as pension funds and wealth managers are having to buy overseas assets, instead of backing Britain. Pension funds want and need to diversify their portfolios into real assets, such as alternative energy, infrastructure and illiquid real estate or small growth businesses more widely and the Government wants to encourage this. Yet, charge disclosure rules have driven them to favour assets that boost growth outside Britain!

The sector is being decimated by measures supposedly designed to ‘protect consumers’ but emphasis on finding ‘low charge’ investments has misled consumers instead: Regulators have rightly tried to ensure that consumers are properly informed about all the charges they pay for holding their selected investments, with no more hidden fees. That is of course important, but the implementation of these rules has created consumer detriment, by requiring charges to be boiled down to just one figure and calling this an ‘ongoing consumer fee’. Listed investment companies have no ongoing fee for holding their shares. Just as SSE or BP or British Land, they disclose all the costs of managing their portfolio of investments in their Report and Accounts and investors compare overall performance, type of business and so on, without being told they should just select shares with the lowest Director salaries, or costs of accommodation! The problem has led to an existential crisis, which Ministers seem to have recognised, but Regulators have failed to address with the sense of urgency required.

Flawed charges figures have caused retail investment platforms, such as Fidelity, to block access to UK investment trusts, or misleadingly report exaggerated consumer costs:  The obsession with reporting an ‘ongoing consumer charge’ figure for all UK companies, has created a situation in which UK retail platforms have erroneously reported them as extremely expensive, on a false premise. They are preventing consumer access to them or driving them to sell or avoid these companies that offer excellent value. Instead of ensuring consumers are told they need to consider many other factors, such as premium/discounts to asset value and the type of investments held, they are presented with a high fictitious charge, or blocked from access altogether to an important part of UK future growth, energy self-sufficiency and infrastructure improvements.

Regulatory guidance has created UK market dysfunction while no other country has hobbled its investment companies like this:  Investors deciding whether to invest in UK listed investment companies are led to believe that the way to choose what to buy is to compare these so called ongoing costs of managing the fund. But at the same time, regulatory guidance forces UK investment companies to report non-existent or exaggerated consumer charges (which consumers simply do not directly pay at all). They are part of the management expenses of each company, assessed within the market share price and only part of the information that consumers need to make a properly informed investment decision.

The FCA is breaching its statutory obligations to ensure orderly markets, maintain international competition, promote growth and sustainable investment in financial markets and is not upholding its own Consumer Duty rules: By not requiring the firms which it oversees – such as retail platforms and Authorised Corporate Directors – to provide information for investors that is clear, fair and not misleading, the FCA’s established rules – or rather its interpretation and application of the legislation – have contributed significantly to vital parts of the UK economy being cut-off from access to capital at a time when our heavily indebted Government seeks to encourage more pension and private funds into UK productive investments that can benefit all of society. I hope the Government will support this Bill or even better, that the FCA will issue new guidance that really does provide the consumer and market protections for which it is supposed to be responsible.

The Bill tomorrow is a short form measure to correct regulatory errors that have had increasingly damaging consequences over time and revitalize UK investment: It aims to offer the fastest possible legislative route to help industry and Regulators uphold the principles on which our financial system is based – as instructed and intended by Parliament.   The ongoing dithering and delays are leaving many firms close to collapse.  A collapse which could be alleviated by rapid issuance of new regulatory guidance requiring the numbers used from the industry EMT data feeds to be accurate for the OCF information and consistent between UK and non-UK investment companies.