The Split Capital Investment Trust Crisis

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The Split Capital Investment Trust Crisis

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  • 製本 Hardcover:ハードカバー版/ページ数 255 p.
  • 言語 ENG
  • 商品コード 9780470868584
  • DDC分類 332'.0415

Full Description


Split capital investment trusts (splits) became fashionable in the late 1990s but the splits boom led to some spectacular collapses as the bear market unfolded. Despite warnings from certain analysts, academics and journalists, over 20 splits have gone bust leaving many private investors seeking redress. A major FSA investigation is now underway. This book, with contributions from specialists intimately involved with the crisis, provides an in-depth and authoritative review of splits, discussing their history, what went wrong, and lessons for the future. A range of views is expressed by the contributors. The book is divided into five parts: The Crisis -- past financial crises, evolution of the split trust sector, the crisis unfolds The Split Capital Trust Market -- the structures, the risks, valuing the shares Response to the Crisis -- the media, regulatory and political response Management Issues -- corporate governance, some ethical considerations, reputational risk Looking Forward -- product innovation and marketing, some implications for the fund management industry, lessons for the future

Table of Contents

List of Contributors                               xi
About the Contributors xiii
Foreword xvii
Acknowledgements xix
1 Introduction,
Andrew Adams 1 (100)
1.1 Aims of the book 1 (1)
1.2 The investment trust industry 1 (2)
1.3 Types of splits 3 (2)
1.4 The crisis and its significance 5 (1)
1.5 Overview of the five parts of the book 6 (1)
PART ONE: THE CRISIS 7 (52)
2 Past Financial Crises,
John Newlands 9 (12)
2.1 Introduction 9 (1)
2.2 The trust boom of 1888-89 10 (2)
2.3 The 1920's trust boom and the Wall 12 (2)
Street crash
2.4 The 1970's trust boom 14 (2)
2.5 The trust boom of 1993-94 16 (1)
2.6 The hurdle-rate warning of 1872 17 (2)
2.7 Conclusion 19 (1)
2.8 References 20 (1)
3 Evolution of the Split Trust Sector,
John Newlands 21 (1)
3.1 Introduction 21 (2)
3.2 The first investment trust 23 (1)
3.3 The second milestone 24 (1)
3.4 Edinburgh, 1873 - the split capital 24 (1)
concept is born
3.5 The first major crisis - Sykes v. 25 (1)
Beadon, 1878
3.6 1929 to 1965 - back to basics 26 (1)
3.7 The birth of Dualvest 27 (1)
3.8 Split, terminology 28 (1)
3.9 Other early splits 28 (2)
3.10 Tax changes after 1979 30 (1)
3.11 New boost to the attractions of 31 (2)
splits
3.12 The hybrid, or quasi-split capital 33 (1)
trust
3.13 1997 - beginnings of the new 33 (1)
splits era
3.14 Technical developments and 34 (1)
structural changes
3.15 Aberdeen New Preferred breaks the 35 (1)
mould
3.16 Key figures in the history of 36 (1)
splits
3.17 Conclusion 37 (1)
3.18 References 37 (2)
4 The Crisis Unfolds,
Andrew Adams 39 (1)
4.1 Introduction 39 (1)
4.2 Aggressive structures 39 (2)
4.3 Barbells 41 (1)
4.4 Big fees 42 (1)
4.5 Lack of information 43 (1)
4.6 The zero market expands 44 (2)
4.7 Mounting concern 46 (2)
4.8 "For whom the barbell tolls..." 48 (1)
4.9 "Barbells unbalanced" 49 (1)
4.10 Change in market sentiment 50 (3)
4.11 Aberdeen's half-day forum 53 (1)
4.12 Suspensions and liquidations 54 (1)
4.13 Conclusion 55 (1)
4.14 References 56 (3)
PART TWO: RISK AND VALUATION MODELS 59 (42)
5 The Impact of the Structures,
Peter Moles 61 (12)
5.1 Introduction 61 (1)
5.2 Future values for a trust with a 62 (1)
prior claim
5.3 Valuing the claims 63 (4)
5.4 Value of shares in a traditional 67 (2)
split
5.5 Traditional split with prior claim 69 (1)
5.6 Effect of the different structures 70 (1)
on projected returns
5.7 Value sensitivity 71 (1)
5.8 Conclusion 72 (1)
5.9 References 72 (1)
6 The Risks,
James Clunie 73 (1)
6.1 Introduction 73 (1)
6.2 Major influences on risk: asset 74 (3)
allocation and capital structure
6.3 Risk for different share classes 77 (1)
6.4 Increasing risks and the onset of 78 (1)
the splits crisis
6.5 Liquidity risk 79 (1)
6.6 Reputational risk 79 (1)
6.7 Traditional risk assessment measures 80 (1)
6.8 Traditional risk assessment 81 (2)
measures became misleading
6.9 Improvements to traditional 83 (1)
statistics
6.10 Using Monte Carlo simulation 84 (2)
outcomes to illustrate risk
6.11 Conclusion 86 (1)
6.12 References 86 (3)
7 Valuing the Shares,
James Clunie 89 (14)
7.1 Introduction 89 (1)
7.2 Background to valuing splits using 89 (3)
closed-form option pricing
7.3 Problems with closed-form option 92 (2)
pricing
7.4 A worked example using closed-form 94 (3)
option pricing
7.5 Monte Carlo simulation 97 (1)
7.6 Pricing during the splits crisis 98 (1)
7.7 Pricing of splits compared with 99 (1)
conventional investment trusts
7.8 Conclusion 99 (1)
7.9 References 100 (1)
PART THREE: RESPONSE TO THE CRISIS 101 (40)
8 The Media Response,
Andrew Adams 103 (1)
8.1 Introduction 103 (1)
8.2 Favourable view 103 (1)
8.3 The early warnings 104 (2)
8.4 Stronger warnings 106 (1)
8.5 Rupert Walker steps out of line 107 (1)
8.6 Increasing concern over zeros 108 (1)
8.7 The FSA steps in 108 (1)
8.8 More bad news 109 (1)
8.9 The men who wiped out billions 110 (1)
8.10 The Treasury Select Committee 110 (2)
hearings
8.11 Bust-up in the trust industry? 112 (1)
8.12 Adverse sentiment goes too far 113 (1)
8.13 Comparison with other mis-selling 114 (1)
disasters
8.14 Implications for the media's 114 (1)
personal finance columns
8.15 Conclusion 115 (1)
8.16 References 116 (1)
9 The Regulatory Response,
Peter Gardner and Geoffrey Wood 117 (1)
9.1 Introduction 117 (1)
9.2 The Financial Services Authority 117 (1)
9.3 The FSA's approach to regulation 118 (1)
9.4 The regulations 119 (1)
9.5 The tasks and impact of the FSA 120 (1)
9.6 Financial market background 120 (1)
9.7 The FSA's initial response 121 (2)
9.8 The FSA proposals and questions 123 (1)
9.9 Objections from the investment 123 (1)
trust sector
9.10 The FSA's powers and investigations 123 (1)
9.11 The FSA's response 124 (2)
9.12 Conclusion 126 (1)
9.13 References 126 (3)
10 The Political Response,
John McFall MP 129 (14)
10.1 Introduction 129 (1)
10.2 The Committee's enquiry 130 (2)
10.3 Misleading impressions 132 (1)
10.4 Responsibility within the industry 133 (2)
10.5 Compensation 135 (1)
10.6 Looking to the future 135 (2)
10.7 Conclusion 137 (1)
10.8 References 138 (3)
PART FOUR: MANAGEMENT ISSUES 141 (50)
11 Corporate Governance,
Robin Angus 143 (1)
11.1 Introduction 144 (1)
11.2 What legislation can - and cannot 144 (1)
- do
11.3 The splits crisis really was 145 (1)
different
11.4 How much could directors have been 146 (2)
expected to foresee?
11.5 The new AITC Code of Corporate 148 (2)
Governance
11.6 How can directors provide an 150 (1)
"objective view"?
11.7 Monitoring managers, communicating 151 (1)
with shareholders
11.8 Initial involvement and continuing 152 (3)
information flow
11.9 Changes to the Listing Rules 155 (1)
11.10 Conclusion 156 (1)
11.11 References 156 (3)
12 Some Ethical Considerations,
Andrew McCosh 159 (1)
12.1 Introduction 159 (1)
12.2 The existence of senior debt 159 (2)
12.3 Pressing the press 161 (2)
12.4 Peddling the paper 163 (1)
12.5 Forced sales of assets 164 (1)
12.6 Charges 165 (1)
12.7 Mutual assistance programme 166 (3)
12.8 It pays to advertise 169 (2)
12.9 If it isn't working, reconstruct it 171 (1)
12.10 Why did the shareholders not 172 (1)
rebel?
12.11 Conclusion 173 (1)
12.12 References 174 (1)
13 Reputational Risk,
Piers Currie 175 (1)
13.1 Introduction 175 (1)
13.2 Reputational risk 175 (2)
13.3 The downward slide of reputation 177 (2)
13.4 The rise and fall of equity funds' 179 (1)
reputation
13.5 Reputational risk in the 180 (1)
regulatory framework
13.6 An introverted facade: "The best 181 (1)
kept secret in the City"
13.7 Tensions: Barbarians within 182 (2)
13.8 Recognising outside stakeholders 184 (1)
13.9 Knowledge, rocket science and 185 (1)
disclosure
13.10 Gossip, fat cats and fast cars: 186 (1)
The public gallery
13.11 Image restoration strategies 187 (1)
13.12 Reputational consequences 188 (1)
13.13 Conclusion 189 (1)
13.14 References 189 (2)
PART FIVE: LOOKING FORWARD 191 (36)
14 Product Innovation and Marketing,
James Clunie 193 (1)
14.1 Introduction 193 (1)
14.2 Understanding investors' needs 193 (1)
14.3 Managing investor expectations 194 (2)
14.4 Product design 196 (1)
14.5 Stress-testing new products 197 (1)
14.6 A decision-making framework for 198 (2)
complex investment products
14.7 New launch documentation and risk 200 (2)
warnings
14.8 Risk awareness and client 202 (1)
suitability
14.9 Client servicing 202 (1)
14.10 Conclusion 203 (1)
14.11 References 203 (2)
15 Some Implications for the Fund Management
Industry,
David Harris 205 (10)
15.1 Introduction 205 (1)
15.2 Where did the industry go wrong? 205 (2)
15.3 A role in education 207 (2)
15.4 Stakeholder investment products 209 (1)
15.5 Compensation and the AITC 210 (1)
Foundation
15.6 Conclusion 211 (2)
15.7 References 213 (2)
16 Lessons for the Future,
Andrew Adams 215
16.1 Introduction 215 (1)
16.2 Corporate governance 215 (2)
16.3 The Association of Investment 217 (2)
Trust Companies
16.4 Financial advisers 219 (1)
16.5 Financial education 220 (1)
16.6 The financial press 221 (1)
16.7 The regulators 222 (2)
16.8 Conclusion 224 (1)
16.9 References 225
Appendix A For Whom the Barbell Tolls...,
Andrew Adams and Robin Angus 227 (6)
Appendix B Response to FSA Consultation Paper
164,
Andrew Adams and Robin Angus 233 (8)
Index 241