When considering entrusting your hard-earned money to an active fund manager, there are lots of different factors that should play into the decision – investment process, fees, size of the fund – but few resonate with ordinary investors more than the concept of a fund manager having skin in the game.
Unfortunately, that’s almost impossible to track here in the UK where there are no rules requiring fund managers to disclose their personal holdings of the fund(s) they manage, meaning we’re reliant on goodwill – and others doing the research for us.
Step forward Investec, which produces an annual audit of skin in the game in the investment company sector – highlighting the good, the bad and the ugly.
It should be noted here that, in our view, the structure and transparency within the investment trust universe provides investors with more data on skin in the game than within the open-ended fund industry.
The high-level overview is that investment trust boards and management held a total of £5.7bn in the trusts they oversee, as at 28/05/2025, with 51 board members and 87 management teams holding more than £1m worth.
We’ll sound a word of warning first: skin in the game is good, but too much of it can lead to unintended consequences. There are examples where management companies with large stakes in the trusts they run have worked against what seemed to be shareholders’ best interests.
Still, when structured well, skin in the game can be a real boon: giving the managers a stake in the success of the trust over and above just collecting their management fees, and providing confidence to shareholders that management believes in their abilities and the trust’s future.
One of the trailblazers here, in our view, is Ashoka India Equity, where the management team owned £10m worth of shares and the four-strong board of directors owned £926,477, with each of the directors’ individual shareholdings worth more than five times their annual fees.
This can largely be attributed to the fee structure of the trust, which is designed specifically to align the interests of the managers with those of shareholders. WhiteOak Capital, Ashoka India Equity’s investment advisor, does not charge the trust a traditional management fee. Instead, it has in place a performance fee, meaning the managers only accrue charges should the trust outperform its benchmark.
Crucially, that performance fee is paid in shares, which we believe demonstrates the managers’ commitment to the ongoing success of the trust. It also accounts for management’s meaty stake in the trust.
Ashoka India Equity provides access to the exciting growth of the Indian market, with a bias to the thriving small and mid-cap space and has put in impressive performance since its 2018 IPO.
There’s plenty of opportunity, too, within the UK smaller companies space, where Rockwood Strategic stands out. Harwood Capital LLP and the management team, including Richard Staveley, own £21.7m of shares and all three board members have investments in excess of their annual fee.
Harwood Capital’s stake adds up to 19% of shares in circulation, which it argues indicates a fully aligned and focused fund management team. We should also point out that their voting is restricted to 10% to avoid conflicts of interest.
Richard’s active approach to management has yielded impressive results: Rockwood Strategic has the best performance track record among its UK smaller companies peer group over the past five and 10 years, with annualised net asset value (NAV) total returns of 22.6%, justifying its premium rating.
Elsewhere in the sector, Charles Montanaro, his family, and the broader management team of Montanaro UK Smaller Companies, own around £17m worth of shares. While some of the board have investments that amount to less than their annual fees, chair Arthur Copple’s stake equals £309,000, the equivalent of seven years of annual fees, the same amount of time he has been a member of the board.
We would also highlight Cordiant Digital Infrastructure, where, at the time of the Investec report, all four board members held shares worth more than one year of annual fees, adding up to £282,875, while the management team had a combined stake worth £12.6m.
That has only increased since May, as directors and management have been adding to their holdings. Steven Marshall, executive chairman and co-founder of Cordiant Digital Infrastructure Management, has bought more than £900,000 worth of shares since June alone. Company insiders now own 2.17% of the trust’s share count.
Shares have risen 60% since their nadir in October 2023, suggesting Marshall and the rest of the company insiders are confident of further upside as they’ve been buying into the share price rise.
That said, Cordiant Digital Infrastructure, which specialises in digital infrastructure assets such as data centres, a key part of the artificial intelligence supply chain, remains on one of the widest discounts in the infrastructure sector, at c.24%, despite our belief that it has some of the strongest capital upside potential of peers.
A trio of trusts where both management and board shareholdings are significant are AVI Global, CT Private Equity and Baillie Gifford US Growth. Indeed, the latter’s management held £2.5m in shares, with the board not too far behind at £1.3m – all board members held investments of more than four years’ worth of their annual fees.
AVI Global and CT Private Equity have similar shareholders, with management owning £4.7m and £4.2m respectively, and the boards holding £730,000 and £740,000 respectively.
Investing in funds or trusts where the managers have skin in the game certainly isn’t a silver bullet – there are plenty of nuances at play. It can, however, be a good way of tilting the odds in your favour and improving your chances of finding an investment where your interests as a shareholder are aligned with management.
David Brenchley is an investment specialist at Kepler Partners. The views expressed above should not be taken as investment advice.