267694 EdinburghIT AR 2024 WEB - Flipbook - Page 23
THE EDINBURGH INVESTMENT TRUST PLC / STRATEGIC REPORT / 21
CORPORATE GOVERNANCE AND INTERNAL
CONTROLS RISK
The Board has delegated to third-party service providers
the management of the investment portfolio, depositary
and custody services (which include the safeguarding of
the assets), registration services, accounting and company
secretarial services.
The principal risks arising from the above mentioned contracts
relate to the performance of the Manager, the performance of
administrative, registration, depositary, custodial and banking
services, and the failure of information technology systems
used by third-party service providers. These risk areas could
lead to the loss or impairment of the Company’s assets,
inadequate returns to shareholders and loss of investment
trust status. Consequently, in respect of these activities the
Company is dependent on the Manager’s control systems and
those of its administrator, depositary, custodian and registrar.
An annual review of the control environments of all service
providers is carried out by the Company Secretary who
provides an assessment of these risks and the operation of
the controls for consideration by the Audit Committee and is
formally reported to and considered by the Board.
In particular, the Manager performs services which are
integral to the operation of the Company. The Manager may
be exposed to the risk that litigation, misconduct, operational
failures, negative publicity and press speculation, whether or
not it is valid, will harm its reputation. Any damage to the
reputation of the Manager could result in counterparties and
third parties being unwilling to deal with the Manager and by
extension the Company. This could have an adverse impact
on the ability of the Company to pursue its investment policy.
The Board seeks to manage these risks in a number of ways:
–
The Company Secretary reviews the performance and
the service organisation control reports of third-party
service providers and reports to the Board on an annual
basis at the Audit Committee meeting.
–
The Board reviews the performance of the Manager at
every Board meeting and otherwise as appropriate. The
Board has the power to replace the Manager and reviews
the management contract formally once a year.
–
The day-to-day management of the portfolio is the
responsibility of the named Portfolio Manager, Imran
Sattar, who was appointed in February 2024, in line with
the Manager’s succession plan. Imran has been a member
of the Liontrust Global Fundamental Team since 2018,
managing UK equity client portfolios jointly alongside
the Company’s previous Portfolio Manager and Deputy
Portfolio Manager, James Uphaugh and Chris Field. Since
Chris and James retired Imran is responsible for managing
The Edinburgh Investment Trust plc and also continues to
be lead manager for two other UK equity strategies.
–
The risk that the Portfolio Manager might be incapacitated
or otherwise unavailable is mitigated by the fact that he
works within, and is supported by, the wider Liontrust
team. Moreover, Emily Barnard, as Deputy Portfolio
Manager works closely with Imran on a daily basis and
would be able to manage the portfolio if Imran Sattar was
unable to do so for any reason.
–
The Board has set guidelines within which the Portfolio
Manager is permitted wide discretion. Any proposed
variation outside these guidelines is referred to the Board
and compliance with the guidelines and the guidelines
themselves are reviewed at every Board meeting.
Investment trust status is assessed by the Manager, reviewed
at every Board meeting and confirmed by the Audit
Committee and HMRC annually. Taxation matters are dealt
with by independent accountants.
RELIANCE ON THE MANAGER AND OTHER
THIRD-PARTY PROVIDERS RISK
The Company is reliant upon the performance of third-party
service providers for its executive function and other service
provisions. The Company’s most significant contract is with
Liontrust Fund Partners LLP who have been appointed as
the Company’s AIFM. The Company has other contractual
arrangements with third parties to act as administrator,
company secretary, registrar, depositary and broker. The
Company’s operational structure means that all cyber risk
(information and physical security) arises at its third-party
service providers, including fraud, sabotage or crime against
the Company. Failure by any service provider to carry out its
obligations to the Company in accordance with the terms of
its appointment could have a materially detrimental impact
on the operation of the Company and could affect the ability
of the Company to pursue successfully its investment policy
and expose the Company to risk of loss or to reputational
risk.
