Let’s hope shareholders in the Acorn Income Fund (AIF) investment trust are a patient lot, given the events of recent weeks and months. Having previously set out proposals to appoint a new investment manager with a fresh mandate, its board has now said that an “alternative proposal” may be more suitable. It seems that they have gone back to the drawing board.
This is inevitably frustrating for some investors, as well as the BMO Global Asset Management team that was due to take over. But what has happened tells us a few things about the nature of change in the investment trust space.
Firstly, change can be hard to get through given the need to secure shareholder approval. On announcing its U-turn on 12 August, Acorn Income board’s wording looks fairly telling: it refers to “careful consideration of shareholder feedback” in justifying a change of tack. It seems like some big shareholders were not on board, forcing a retreat.
Trust boards need to take investors with them, for better or for worse, while changes can sometimes be easier in the open-ended space. It’s not uncommon for open-ended funds to be closed, merged into other vehicles or altered (to an extent) without requiring the approval of investors (or smaller ones, at least), even if concessions of sorts are often made to them.
But the need to keep trust shareholders happy and interested is a good thing, and means that boards often seek to adapt to demand. That can be seen in the original proposals for Acorn Income: its board had planned to move from being a bond and equity income portfolio, managed by Unicorn Asset Management and Premier Miton Investors, to a sustainable global equity income fund run by BMO. This would hopefully modernise the portfolio, draw more investors in and get this fairly small trust to a greater scale.
At the time of writing we were still waiting for details of the “alternative proposal”, and it will be interesting to see what the trust's board has in mind now. One theory is that they had misjudged the mood of some bigger investors, who were not so keen on turning the fund into an environmental, social and governance (ESG) investment vehicle, and its board may go in an entirely different direction. This could be a sign of the ESG move losing some steam: we’ve already discussed why Liontrust recently failed to get a closed-ended vehicle off the ground for its Sustainable Investment team, while there are already a number of existing funds in that space, from the revamped Keystone Positive Change Investment Trust (KPC) to Jupiter Green Investment Trust (JGC). Plenty of other trusts take ESG into account even if it is not their leading focus.
Having said that, let’s not write off the prospect of another ESG proposal. The Acorn Income update from 12 August noted that its board had received “further interest” from investment managers, and it may be that others in the sustainability space have pitched for business. The failure of the Liontrust ESG Trust launch means that the team behind it may now be after an existing vehicle to take over, while it’s possible other teams, such as Baillie Gifford Positive Change's (GB00BYVGKV59) managers, have been considered. Whatever happens, I imagine shareholders will be happy to find some sort of resolution and move on.
