An investment fund that promises to break the mould of City short-termism and aims to make gains of 7% a year is to open for small investors able to put in as little as £500.
The People’s Trust, backed by Liberal Democrat leader Sir Vince Cable, is the brainchild of Daniel Godfrey, the former head of the Investment Association, which represents fund management groups. He left after some IA members were unhappy with his campaigning for lower charges and greater transparency.
Godfrey says he became disillusioned by the failure of traditional fund managers to deliver long-term, sustainable returns. He also believes long-term investors should support local communities and ensure corporations pay their fair share of tax. “The People’s Trust focuses on long-term, sustainable wealth creation. Short-termism has damaged investor returns and the potential for long-term investment to make the world a better place,” he says.
The cash raised – Godfrey is seeking £50m to get the fund off the ground – will be invested in about 100 firms around the world, with up to 5% going to “social impact” investments such as social enterprises and charities. The day-to-day money management will be done by five fund management groups, which will each be given a seven-year contract to ensure their performance horizon is the same as the underlying investors.
Godfrey also promises that if the fund grows in size, the economies of scale will be passed on to investors. Currently, funds of £10m and £10bn charge similar management fees, but Godfrey says these should fall as the fund grows.
Already, 2,400 “founder investors” have thrown their support behind the fund. “This gives us credibility when we say we will be run for the benefit of the people who invest in us and nobody else, that we will get cheaper as we get bigger, and that we have organised our structure and governance to make sure we stay true to our purpose,” says Godfrey, who estimates that the costs of running the fund will be around 1.07% a year.
Cable has been a supporter of the venture since it was first proposed last year. “The UK needs a radical transformation of capital markets,” he says. “The current system awards prizes for short-term, relative returns – and this comes at a high opportunity cost for long-term productivity and GDP growth, as well as poorer returns for pension savers.”
The People’s Trust fund bears some of the characteristics of other high-profile launches, such as Terry Smith’s Fundsmith and Neil Woodford’s Equity fund and Patient Capital trust. These profess to target long-term returns and avoid chasing benchmarks such as the FTSE 100. While Fundsmith has proved successful, earning investors returns of 163% over the past five years and garnering £12bn under management, Woodford has suffered poor returns.
The £8bn Woodford Equity fund has lost investors 2.5% over the past year at a time when the average fund is up 8.5%, while Patient Capital is still below its 2015 launch price. However, it is the focus on one- or even three-year returns that Godfrey says damages long-term, sustainable investing.
Anyone wanting to invest in the new fund can get a form at Thepeoplestrust.co.uk and send in a cheque, after which they will be sent a share certificate. Or they can invest through an online platform such as Hargreaves Lansdown and Alliance Trust Savings. The initial offer period ends on 10 October and the fund will begin trading on the London Stock Exchange on 17 October.