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A helping hand for investment company directors

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Directors of investment companies face a myriad of issues across a diverse range of areas. Keeping abreast of developments is challenging even for experienced board members with specialist skills. Directors are the AIC’s core stakeholders and we have been developing resources to help them execute their role successfully. With this in mind we have recently published an updated, online, version of our “Handbook for Directors of Investment Companies”.

The AIC represents a broad range of closed-ended investment companies, including offshore closed-ended investment companies, investment trusts, venture capital trusts, and AIM-traded investment companies. The handbook seeks to identify issues of interest to directors of all these companies, bringing together information which is directly relevant to their activities and drawing out common themes which will help them in performing their duties.

The handbook provides directors with ideas and guidance on matters which may arise during boardroom discussions both in the normal course of business and in relation to one-off events, such as a capital reconstruction. It covers the duties and responsibilities of investment company directors and focuses on the unique aspects of the role as non-executive director of an investment company, particularly in terms of outsourcing the management and day-to-day administrative functions, and the role of shareholders as both investors and customers.

Who is the handbook for?

As well as providing a useful reference tool for experienced directors, the handbook can be used as important preparatory reading for newly-appointed directors, especially those from outside the investment management industry. It is also a valuable source of information for others servicing and advising the investment company sector, such as administrators, company secretaries, fund managers, lawyers, brokers and accountants.

What is in each chapter?

The first chapter is called “About investment companies” and provides information on the structure of the industry as a whole and the companies operating in the various sub-sectors. Eight ‘key features’ are covered, which are regulation, market listing, board of directors, shareholder participation, closed-ended structure, discounts, gearing and the ability to issue different share classes. This chapter also examines the role of the manager and other service providers, and provides a short history of the industry.

Chapter 2 covers the role and responsibilities of an investment company board and the various committees which support the board, as well as the duties of the chairman and individual directors.

Chapter 3 looks at “Managing the portfolio”. It explains the different elements of the investment process, discusses a variety of ways of measuring investment performance, and considers the role of the board in monitoring and evaluating investment performance and the work of the manager.

Chapter 4 deals with the profit and loss side of managing the portfolio and covers the different forms of income and expenses which an investment company is likely to incur. It also looks at issues relating to dividend distributions.

Chapter 5 examines the issue of risks and internal controls, and provides guidance on matters which are particularly relevant for investment companies, such as the outsourcing of management and administrative functions.

Chapter 6 provides practical guidance to help the board undertake a strategic review of the company to ensure that its direction and development continues to meet the needs of shareholders.

Chapter 7 is called “Shareholder communications” and examines the different ways in which the board of an investment company communicates with its shareholders, for example through the annual general meeting, presentations and individual meetings. It also covers the different forms in which investment companies distribute written information to shareholders, including annual reports, stock exchange announcements and factsheets.

The last chapter of the handbook covers the different ways of increasing and decreasing the size of an investment company, for example through share issues, buy-backs, treasury shares, and gearing. It also covers one-off corporate events such as roll-overs, reconstructions, and liquidation.

What are the benefits of online access?

The online format allows the handbook to be used interactively to develop research and understanding of a particular topic. For example links are embedded into the text to bring together information from other related areas of the handbook or to direct the reader to relevant technical guidance published by the AIC or third parties.  Topics of interest can be easily located by clicking through links on the contents page or the site map, or by searching on key words.

Technical words and phrases are hyperlinked to definitions or explanations in other parts of the handbook. Where possible diagrams and flowcharts are used to simplify processes and contain links to more detailed information if required.

Another benefit of an online handbook is that it allows the AIC to regularly update and expand the contents as industry issues or technical developments arise. In this way the handbook becomes a ‘library’ of information which reflects the latest industry trends, current regulatory requirements and emerging best practice.

Any new or amended material is highlighted on a ‘Latest changes’ page at the front of the handbook. Recent additions include, for example, slides from an AIC seminar on the new Guernsey company law and a paper from a Guernsey law firm on the new solvency test. The AIC is continually working on new material for the handbook. Current projects include the creation of a director’s guide to risk and an update to the material on D&O insurance. We hope to be able to add both of these during the course of 2009.

Where is the handbook available?

The AIC Directors’ Handbook can be found on the AIC’s website at


If you have any questions or comments in relation to the AIC’s “Handbook for Directors of Investment Companies” please contact Alison Andrews at [email protected] or on +44 (0)20 7282 5613. The AIC is always looking for ideas on how to develop and improve the handbook and welcomes suggestions from users.

By Alison Andrews, Technical Project Manager at the Association of Investment Companies

This article originally appeared in the Spring 2009 edition of the Channel Islands Stock Exchange Bulletin Board.

Please click here to read the full edition

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