"Hence, there became a disincentive to invest in investment trusts to avoid unexpected changes, questions about them or hitting cost ceilings."
FTAdviser has previously reported that under the Priips rules, the requirement for investment trusts to include transaction costs in their disclosure could make them look relatively more expensive than open-ended equivalents.
Bowles told FTAdviser that local authority pension schemes in particular may want to invest in renewable energy or other social impact investments, but that elected councillors, mindful of the political imperative, may raise the issue of fees and ask why lower cost options are not chosen instead.
She said this could lead to "billions" exiting the sector.
Next steps?
William MacLeod, managing director at Gravis Capital, an investment management firm, said: “It is very encouraging to know that the perplexing issue of cost disclosure has been raised in the House of Lords and I’m sure all investors in the sector are exceptionally grateful to Baroness Bowles for bringing repeated attention to this confusing situation.
"The unintended consequence of the guidance, which took effect 12 months ago on June 30, 2022, was to slam the brakes on our national efforts to participate in Britain’s drive to grow our nation’s renewable energy infrastructure sector. It has caused confusion and delay for investors who perceive that charges have risen, where they haven’t and that the investment sector had been hiding something, which it hadn’t. It has been terribly confusing, and nothing has been gained.”
Richard Stone, chief executive of the Association of Investment Companies, said that it is a key issue.
"Investment trusts are a proven way for investors to access productive assets," he explained. "As we have submitted in response to the FCA’s consultation on retail disclosure, cost disclosure needs to be reformed.
"Transparency is important and should enable better investment decisions. Cost disclosures must not be a barrier, create an unlevel playing field or drive market distortions.
"For example, the existence of a disclosed cost should not act as a disincentive to investing in an infrastructure investment trust as opposed to an operating company, such as a utility, with different risks but no associated disclosed cost. Better cost disclosure enabling a vibrant investment trust sector and greater focus on value, not least cost, is to the benefit of investors and the wider economy."
The Financial Conduct Authority has been approached for comment.
david.thorpe@ft.com
