Investment Trust

Investment Trust

The term investment trust refers to a collective investment fund primarily in the United Kingdom. The term is somewhat misleading because the collection of investments does not constitute a trust per se, but a public company. Therefore, as the law defines corporations as separate, legal entities and persons, the fund falls under this same definition. However, the investment fund is a public limited company. Further, investment trusts are closed-ended trusts. The model of closed-ended funds means that a fixed number of shares are issued and may not be redeemed from the fund.

Similar to mutual funds, investors’ money is pooled together. In the case of investments trusts, the capital is obtained from the selling of the shares issued. The fund is typically administered by a fund manager, but lacks any employees. Just like with a corporation, a Board of Directors may take all the decisions concerning investing, operations and other activities. Once again like in the case of mutual funds, pooling capital together from several investors allows investors access to a larger number of companies to invest in, than they would be able to do by themselves. Historically, the first investment trust was the Foreign & Colonial Investment Trust created in 1868.

White flowers with red nerves. Illustration by Elena

Further, in the United Kingdom, REITs (Real Estate Investment Trusts) have the same structure and organization as an investment trust. Also, they must be UK resident and publicly registered with the Financial Services Authority. However, the Financial Services Authority (FSA) was a regulatory body of the financial services industry in the United Kingdom from 2001 to 2013. Due to the financial crisis and the possible regulatory failure of banks, the FSA was abolished. To avoid leaving the financial industry unregulated, the responsibilities of the FSA were divided between the Bank of England (the central bank), the Financial Conduct Authority and the Prudential Regulation Authority.