Breaking the glass ceiling: gender diversity in investment trust boards

The investment trust industry may historically have been the home of tweed suits and City lunches, but it has done a lot in recent years to modernise. One of the key areas of progress has been in the championing of women on its boards, with a huge uptick in female directors, chairs and chief executives.

Board diversity can feel tokenistic, but there is growing recognition that board diversity brings real advantages. It helps avoid group-think, and the cosy consensus to which long-standing homogenous boards often succumb. It enriches debate, boosts decision-making, and creates greater dynamism in the boardroom. It should improve the scrutiny of the investment manager and may even improve financial performance. All this should be good for the shareholders investment trust boards represent.

The Investec Skin in the Game/Diversity survey has become a vital benchmark for good governance in the investment trust sector. It shows that 41% of board positions are held by women*. This compares to just 8% in 2010*. According to Investec, two-thirds of investment companies in this report have already met the target of 40% women on boards, while 74% have at least one woman in a senior board position*.

It is worth highlighting those trusts that go above and beyond the targets – 17 trusts have boards where more than two-thirds are women** — including the Elite Rated Murray International Trust***.

That said, improvement has not been organic, but as a result of clear targets and initiatives laid out by the regulator, investors and City organisations. In particular, in April 2022, the FCA published its diversity targets stating that at least 40% of the board should be women, including at least one of the senior board positions – chair, chief executive officer, senior independent director or chief financial officer^.

Investment trusts have to disclose the balance of their boards in their report and accounts. As such, it has taken time for a full picture to emerge, but the initiative has clearly galvanised the sector into action.

The laggards on board diversity

Nevertheless, there are still laggards. While two-thirds of trusts now meet the 40% target, and three-quarters hit the requirement to have one woman in a senior position, 57 boards (out of 293 trusts) have only one female director, and 13 still have all-male boards (as at June 2023)*.

The trusts with no female directors are generally not mainstream trusts. They include Axiom European Financial Debt, DP Aircraft, Geiger Counter Ord, JPEL Private Equity, Manchester & London and NB Distressed Debt**. There are also trusts that are essentially private vehicles with limited public liquidity, such as the New Star Investment trust** (where New Star founder John Duffield holds 59.1% of the shares).

Work on female representation is ongoing. Some major investors have been championing the cause. For example, in September 2023, Quilter set out its expectations on board composure for the investment companies in which it invests and produced a number of recommendations.

Gemma Woodward, head of responsible investment at the group and co-author of the report, said: “We expect boards to be diverse and by this we have considered the FTSE Women Leaders and Parker Review targets as well as the FCA’s diversity targets… Our current expectation is that the board should have 40% female representation as well as meeting the Parker Review ethnic minority target as appropriate. Additionally, we encourage boards to think about their recruitment processes and whether they are accessing a wide pool of candidates.” She adds that Quilter does not invest in companies with no female representation on the board.

She says that having talked to key executive search firms for the report, diversity has become a more important factor within the succession-planning process: “Boards are seeking a more diverse shortlist of candidates as pressure mounts to meet regulatory targets. In some cases, boards are looking to hire NEDs with no board or investment experience to broaden their potential universe of candidates.”

There are still problems. Some boards over-hire to meet diversity targets, leaving a larger, more expensive and unwieldy board. There is still resistance in some quarters to the idea of diversity targets and boards still complain about the lack of experienced options. Nevertheless, these arguments are starting to hold less sway.

Broader diversity targets

However, board diversity is not just about female representation and there are other areas that still need work. Annabel Brodie-Smith, communications director of the Association of Investment Companies (AIC), says ethnic diversity, for example, is still a work in progress.

She adds: “There is evidence that investment companies are making progress on increasing the ethnic diversity of boards. We have seen this reflected in recent appointments and are aware of investment companies who have asked headhunters to proactively search for diverse candidates.

“The FCA Listing Rules on diversity were introduced recently so not all investment companies have reported against them yet. By mid-2024, we will for the first time have comprehensive data on the ethnic diversity of investment company boards and all listed company boards. This is needed – it’s impossible to measure progress without accurate data.” She believes there are plenty of well-qualified candidates from a variety of ethnic minority backgrounds who have much to offer to investment company boards.

The AIC is doing its part to support diversity on boards and has a number of initiatives to widen the pool of potential investment company directors. Its website, Pathway, aims to encourage a wider range of people to consider becoming investment company non-execs.

There is still more work to do, but the investment trust industry has come a long way in a short space of time. It is helping modernise the sector and ensure it is fit for the future.

How do Elite Rated investment trusts measure up?

At time of writing, FundCalibre rates a total of 21 investment trusts, all of which have a minimum of one female board member. 15 of the 21 trusts meet the 40% guidelines from the FCA and 9 out of 21 have more than 50% female board members***.

Those included are Murray International Trust, Baillie Gifford Japan, Schroder Oriental Income, TR Property Investment Trust, European Opportunities Trust, JPM China Growth & Income, Martin Currie Global Portfolio Trust, Schroder Income Growth and The Global Smaller Companies Trust***.

*Source: AIC, 9 June 2023

**Source: interactive investor, 14 June 2023

***Source: FundCalibre research, data at 26 February 2024

^Source: FCA, policy statement PS22/3, April 2022