In an unscheduled announcement to the stock exchange this morning, the Lindsell Train Investment Trust (LTI) revealed it had reached agreement with its board to switch its benchmark from long-dated gilts plus 0.5% to the MSCI World Index in sterling from the start of April this year.
The trust made the change as the global equities index is ‘a more appropriate benchmark for the company given the nature of the portfolio, which is predominantly invested in equities and is likely to remain so for the foreseeable future’.
However, by changing the benchmark retrospectively, the trust has changed the basis on which it was paid performance fees. In a nutshell, the trust has outperformed the MSCI World Index by less than the previous benchmark, so it should have earned lower fees.
For the year to the end of March, the trust accrued a performance fee of £5.32 million. Today, the management team of Nick Train, Michael Lindsell and James Bullock agreed to waive half of that fee, or £2.66 million.
For this year and for future years, Lindsell Train management will be paid a fee of 10% of any annual outperformance over the MSCI index. So, if the trust beats the index by 10% in a year, its performance fee will be 1%.
A performance fee will only be paid if the change over the performance period is both above the benchmark and is a positive figure. In years where Lindsell Train is not eligible for a performance fee based on these two criteria, relative performance will be carried forward.
Shares in LTI rose just over 1% to £1,382, putting the trust on an 11% premium to yesterday’s net asset value per share of £1,244. So far this year the shares have gained 20% compared with a gain for the MSCI World Index of around half that amount, which augurs well for fees.
