Daniel Godfrey, former chief executive of the Investment Association (IA), has been forced to scrap his sustainably minded People’s Trust after failing to secure the minimum £50m needed to list on the London Stock Exchange.
Mr Godfrey said the fundraising was "well into eight figures" and that the fund was on track to reach the halfway point of the £50m minimum needed. But he said he had not managed to lure in enough institutions and wealth managers to get him over the line by the close of the offer period on 10 October 2017.
Mr Godfrey said: "We were well supported by retail investors, but didn’t get the support to add to that from the institutional and discretionary wealth manager market. Although we never wanted to be reliant on those, we did think it possible that we would get more than we did."
Mr Godfrey, who was ousted from his role as IA chief two years ago after clashing with the industry, was intent on launching his trust without institutional backing and crowdfunded more than £100,000 in start-up costs from 2,500 investors.
"To launch the People’s Trust effectively by the people and for the people would have been nice, but the lesson is that that might not be possible because there is not sufficient capital in the self-directed retail market. If something like this was to work it would probably take something pre-underwritten by asset owners," he said.
But commentators said there were issues too with the trust’s offer, including giving external fund managers seven-year contracts rather than the usual five, in order to break away from industry short-termism.
Jason Hollands, managing director at Tilney Group, said: "It was going to be a big ask to raise that kind of money without an organisation behind you, but the fundamental proposition wasn’t quite right. A big hook was to give managers seven year-contracts, but that could mean you'd be stuck with an underperforming fund manager for seven years.
"The asset allocation approach also led to an outcome that no adviser would build, essentially you were ending up with an equal weighting across core areas, so you would have as much in clean energy companies as you would in UK equities," he said.
Mr Hollands said the external manager structure also meant it would be unlikely to appeal to discretionary wealth managers. "A wealth manager’s job is to construct portfolios of fund managers, so firms managing money are not a natural home for this fund," he said.
Mr Godfrey acknowledged that: "The fact we were choosing managers could have been an issue for advisers, who see that as their job."
The People’s Trust also used the same investment managers – Willis Towers Watson – as fellow multi-manager fund Alliance Trust (ATST). Although the external fund managers were completely different, commentators said it made the offering too similar to funds on the market already.
Numis said : "Ultimately, we do not believe that The People’s Trust was sufficiently differentiated from existing options to attract interest from institutional investors, despite comments from Daniel Godfrey that he was seeking to “break the mould”. [Investors] already have the choice of two large multi-manager investment companies, Alliance Trust (£2.48bn market cap, [trading at a] 5.9 per cent discount) and Witan (£1.82bn market cap, [at a] 1.6 per cent discount).”
The People’s Trust was also more expensive than both of those, said Numis. Its annual charge was expected to be 1.07 per cent at launch. Alliance Trust's ongoing charge is 0.54 per cent and Witan has an ongoing charge of 0.79 per cent.
Investors who had applied for shares will now be refunded, but any of the founders who stumped up for the fund's set-up costs will not get their money back.
Mr Godfrey laid out plans for his trust last year, pitching it as a sustainable alternative to investment trusts on the market, by giving managers a longer time period to invest and encouraging them to invest in companies focused on long-term wealth creation. It would have aimed to achieve returns of 7 per cent a year over a seven-year period, but was not benchmarked against any performance indices.
Mr Hollands said: "There is no doubt that Daniel is a serious figure and there were many noble objectives in what the trust was trying to do and there are certainly aspects of this trust that might appeal to many investors.
"When it came down to it the investment proposition wasn’t quite right, but I think the key failure is more due to the fact that it is very difficult to reach direct investors in this kind of size. It really was a big ask."
Mr Godfrey did not rule out trying to launch another fund in the future. He said: "I have no plans at the moment, but it should be obvious that I see the need for the investment industry to focus on sustainable wealth creation and stewardship instead of short-term index returns, it's something that's very dear to my heart."
