FUND management companies will be limited to one representative on the boards of investment trusts under new rules drawn up yesterday to avert a repeat of the split capital trust fiasco.

Crossholdings between investment trusts will also be severely curbed after the Financial Services Authority (FSA), the regulator, concluded that a web of shared interests played an important role in the collapse of the splits market last year.

More than 20 split capital trusts have been wound up, leaving as many as 20,000 investors out of pocket. The trusts were hit by a combination of falling equity prices, hefty borrowings and a network of crossholdings.

The FSA yesterday stopped short of implementing its original plan for an outright ban on management group representatives after lobbying from the industry. But it has insisted that any fund manager executive must be elected annually.

Trusts will be restricted to investing 10 per cent of their portfolio in the shares of another trust that in turn owns more than 15 per cent of the stock of other trusts. Trusts that specialise in holding other investment trusts — funds of funds — can continue.

Shareholders will also receive more information about the portfolios of trusts, which will have to disclose any holdings of more than 5 per cent on a monthly basis, as well as any holdings, no matter how big, in fund-of-funds trusts.

Daniel Godfrey, Director-General of the Association of Investment Trusts, said: “This is an important step in rebuilding confidence in the investment trust sector.”