New trust plans to shake-up investment short-termism
A new investment trust hopes to lead the fight against investment short-termism, and at the same time fling open the doors to thousands of new investors.
The People’s Investment Trust is hoping to raise £125m and float on 17 October. Retail investors can take part in the IPO (initial public offering) offer via most good stockbrokers, if they so wish.
What's the investment strategy?
The People’s Trust plans to invest across a range of funds with a particular emphasis on social impact and renewable energy assets.
An initial 1% of the funds raised will be allocated to social impact investment, aimed at addressing social deprivation in the UK and beyond. This could increase to a maximum 5% of trust funds in time.
Five highly-rated external fund managers will build and run its investment portfolio. They include a clean energy investment strategy run by hedge fund Lansdowne Partners; and a UK smaller company component run by Artemis Investment Management.
How much money could you make?
The chief selling point to new investors, according to the trust, is that its investment returns performance will be measured over a seven year time horizon, longer than the typical three year cycle.
The People’s Trust is aiming generate total returns of 7% per year over its seven year cycle after costs. That target assumes consumer price index (CPI) inflation averaging 2% a year. The estimated ongoing cost ratio will be 1.07%.
It wants to encourage the companies in which it invests to ‘stand up to pressure from shorter-term investors and markets and to invest in their own long-term sustainable futures’. It believes this will lead to better long-term returns for shareholders.
‘The People’s Trust has created our own investment chain, so that we can focus on long-term, sustainable wealth creation without the short-term pressure that plagues the investment chain,’ says chief executive Daniel Godfrey.
‘Short-termism may be caused by profit risk and career risk, but it has done enormous damage to investor returns and to the potential that long-term investment has to make the world a better place.’
Fund manager performance fees will also be linked to the trust’s seven year performance cycle, aligning their aims with those of ordinary investors.
‘The UK needs a radical transformation of capital markets if they are to fulfil their purpose of sustainable wealth creation,’ says Vince Cable, MP and leader of the Liberal Democrats.
‘The current system awards prizes for short-term, relative returns and this comes at a high opportunity cost to long-term productivity and GDP growth as well as poorer returns for millions of pension savers.
‘The People’s Trust has created a structure and purpose which is able to challenge the present model. Writing as an individual who sought in government to promote “long-termism” in financial markets, I hope that the People’s Trust will be a success,’ he adds.