How is "The People's Trust" not just another Investment Trust?

Question

So there is this thing called "The People's Trust" been getting some media coverage recently (for example, here and here and here).

While I like the idea of someone (claiming to be) trying to do something a bit different (BACIT - at least before it became Syncona - and maybe Woodford Patient Capital being good examples, IMHO)... I'm struggling to understand what it is about "The People's Trust" which will really distinguish it from the rest of the pack. For example, they seem to like to emphasize the "100% owned by customers... its customers are its shareholders and own 100% of the shares" aspect, and that it's "an independent investment company... not controlled by any commercial organisation that is seeking to make a profit."... but those should be true of any investment trust (IT)!

Is this just an attempt to sell an IT to people who wouldn't normally consider them, or is there some real innovation intended here I'm missing?

Update 2017-06-03: The trust now has a website up here with a bit more information, and there's a nice Citywire article with some analysis. Can't say I'm seeing much to appeal about it myself, or much to distinguish it from any other high-charging fund-of-funds type investment (albeit one with a sustainability/social impact tilt).

Update 2017-07-18: Another article here has a bit more on the founder's inspirations and long-term thinking. Also hints the annual charges could be more like 1.1% than the 1.5% in previous coverage.

Answer 1

According to what little information is available currently, this fund is most akin to an actively managed exchange traded fund rather than an investment trust.

An investment trust is an actively managed, closed-end fund that is tradeable on the stock market. "Closed-end" means that there are a fixed number of shares available for trading, so if you wish to buy or sell shares in a closed-end fund you need to find someone willing to sell or buy shares. "Actively managed" means that the assets are selected by the fund managers in the belief that they will perform well. This is in contrast to a "passively managed" fund which simply tracks an underlying index.

The closed-end nature of investment trusts means that the share price is not well correlated to the value of the underlying assets. Indeed, almost all UK investment trusts trade at a significant discount to their net asset value. This reflects their historic poor performance and relatively weak liquidity. Of course there are some exceptions to this.

Examples of open-end funds are unit trust (US = mutual funds) and ETFs (exchange traded funds). They are "open-end" funds in the sense that the number of shares/units available will change according to demand. Most importantly, the price of a share/unit will be strongly correlated to the net asset value of the underlying portfolio. In general, for an open-end fund, if the net asset value of the fund is X and there are Y shares/units outstanding, then the price of a share/unit will be X/Y.

Historic data shows that passively managed funds (index trackers) "always" outperform actively managed funds in the long term. One of the big issues with actively managed funds is they have relatively high management fees. The Peoples Trust will be charging about 1% with a promise that this should come down over time. Compare this to a fee of 0.05% on a large, major market index tracking ETF. Further, the 1% headline fee being touted by Peoples Trust is a somewhat misleading, since they are paying their employees bonuses with shares in the fund. This will cause dilution of the net asset value per share and can be read as addition management fees by proxy. Since competent fund managers will demand high incomes, bonus shares could easily double the management fees, depending on the size of the fund.

In summary, history has shown that the promises of active fund managers rarely (if ever) come to fruition. Personally, I would not consider this to be an attractive investment and would look more towards a passively managed major market index ETF with low management fees.

Answer 2

Well the People's Trust's IPO prospectus is now (2017-09-08) available for all to read (or there's a smaller "information leaflet"). (May need some disclaimers to be clicked to get access). Both have a "highlights" bullet-point list:

• Bespoke high-conviction investment portfolio
• Focus on sustainable wealth creation
• No index benchmark constraints on managers
• Absolute return target of 7 per cent. per annum over 7 years
• Discount and premium management policy
• Truly independent
• Shareholder engagement
• No performance fees
• Stewardship
• Social impact

Coverage here has a comment thread with some responses by the founder attempting to answer the obvious objection that there's other multi-manager trusts on a discount (e.g Alliance Trust on ~ -5.5%), so why would you buy this one on a (very small) premium? (Update: There's also another recent analysis here.)

Personally, I'm thinking the answer to the original question "How is The People's Trust not just another Investment Trust?" is pretty much: "it's just another Investment Trust" (albeit one with its own particular quirks and goals). But good luck to them.