The chair of the Lindsell Train investment trust has warned shareholders that mechanisms in place since the inception of the management company Lindsell Train Limited may have to change as they look to retain talent and make succession plans.
Julian Cazalet explained in the annual report of the £209.2m trust, published today (15 June), the management company has been "taking steps to improve the durability of its business and implementing some important initiatives, with particular focus on succession".
Cazalet explained LTL's profit margin is currently protected by its salary and bonus cap, which is 25% of all fee revenues other than those derived from the Lindsell Train investment trust.
This policy has been in place since the company's inception and, together with the commitment from LTL to pay out 80% of its net profits as dividends, was designed to "reassure" shareholders that any success in growing the company "would be translated into tangible rewards for LTL shareholders by way of dividends".
However, as the company thinks about succession it has expanded its profit share scheme, and the chair anticipated the cap will need to be raised.
"Should that occur, shareholders should be aware that LTL profit margins would fall from current levels," Cazalet stated.
Prospects for the management company are particularly important to shareholders of the trust as 43.5% of net assets are held in the company, along with a further 7.9% and 1.6% held in another fund and trust run by LTL.
The company is run by its founders Nick Train (pictured) and Michael Lindsell, who the chair said are planning to be involved in portfolio management and the running of LTL for at least another seven years.
However, since 2010 the company has added five members to the investment team, along with several other non-investment roles. There are 25 employees, up from 19 this time last year.
In an appendix to the results, the chair also stated the biggest risk to LTL was the "withdrawal of either of the founders".
"The clearer articulation of the firm's succession planning and the accelerated transfer of ownership of LTL shares to key individuals should also help mitigate the risk if either founder withdraws," the chair said.