UK tightens investment trust rules amid activist investor battles

The UK is introducing proposed changes to investment trust listing rules, focusing on enhancing shareholder protections. These reforms are a direct response to a rise in activist investor campaigns targeting the sector over the past two years. The Financial Conduct Authority (FCA) stated that the proposed changes are designed to better manage conflicts of interest that arise with activist investors.

The FCA's proposals, currently open for public feedback until August 16, will address potential conflicts where directors are nominated by significant shareholders. They also aim to ensure that minority shareholders are adequately protected when large shareholders, who also act as managers, vote on crucial changes to investment policies. This initiative seeks to bolster market functionality by strengthening shareholder rights and minimizing conflicts.

Industry bodies have reacted positively to the proposed reforms. The Association of Investment Companies (AIC) welcomed the FCA's proposals, noting they would significantly strengthen investor protection. This is particularly relevant in scenarios where a substantial shareholder, such as Saba Capital, attempts to replace a trust's board and subsequently take over management responsibilities. The FCA's move is seen as a measure to ensure fairness and stability within the investment trust market.