First State Investments and Orbis Investments have supported his initiative, and could be included in the final roster of managers. But Godfrey said: “I would like to find a new generation of talent, interested in backing our approach.” He wants to hire between three and seven firms using a sustainable investment approach.
A former chief executive of the Investment Association, Godfrey is a big fan of active managers who train their firepower on a restricted number of stocks and own them over the long term. But he said they tend to be closed to new business. Firms like this include Silchester International Investors, Cedar Rock, Longview Partners and Marathon Asset Management.
According to analysts, Godfrey needs to raise £50 million for his trust to make it viable. He has raised £100,000 to cover launch expenses through a crowdfunding exercise.
Godfrey is using Willis Towers Watson to help with his manager search. WTW is also a big fan of long-term solutions. Last year it revealed that its long-term, sustainable, strategies had delivered annualised outperformance of 2.1 percentage points over 11 years.
Each People’s Trust manager will be asked to manage the trust on an absolute return basis, without reference to benchmarks. Godfrey said problems highlighted by the Financial Conduct Authority report on asset management, published on 18 November, required a response. He was an adviser to the FCA prior to the publication of the report.
He said: “The FCA report looks pretty damning for active management. But the fault is not that the FCA doesn’t understand active, it’s that far too much active has been trying to beat a benchmark by a bit every year and is doomed to fail and to lose to passive. If the impact of the review is to re-focus active on long-term, sustainable wealth creation, both it and its customers can thrive.”
On November 28, Godfrey published the People’s Trust approach to stewardship, which opposes corporate bonuses and supports shareholder action to cut carbon emissions. He said: “Short-termism, caused by perverse incentives, complexity and the costs of multiple layers of intermediation in the capital markets are the root cause of the UK’s productivity puzzle.”
Godfrey wants environmental, social and governance principles put at the front of investment decision-making rather than at the back: “I believe that if you take your highest weighting in companies which are well run, you end up outperforming.”
He wants his managers to take account of ESG issues but stressed the People’s Trust was keen to get stuck into specific issues. Professor John Kay, a proponent of long-term investment, has argued that one of the areas where managers can best add value is through effective corporate governance.
The People’s Trust wants companies to pay their executives through straight salaries and deferred equity, rather than bonuses. Godfrey said managers should publicise the principles that lie behind their incentives.
He added: “Incentive pay should be a fraction, not a multiple and paid largely in units or shares that need to be held long term and matched to client experiences. We can’t dictate how suppliers pay their people any more than a charity can dictate how their suppliers pay. But we could avoid a supplier if we felt their structure led to excessive risk.”
In a recent research paper, WTW senior consultant Tim Hodgson argued it was time to do away with expensive bonus structures, which were “unsustainable”.
The initial all-in cost of running the trust could be as high as 150 basis points. But Godfrey is keen to get payments down to 100 bps, falling to 75 bps, as his trust grows in size. Godfrey is willing to discuss a range of manager fee structures, but stressed they should offer value for money.
Godfrey said: “We are targeting a return of 7% per annum, over seven years, which would be reasonable during a standard economic cycle. If we fall short, or exceed the target, we shall be straight with investors over what’s been going on.”