The bosses of a £144m fund to compensate victims of failed investment trusts have hired two PR teams. One puffed up some of the firms that caused the mess in the first place

Expecting a large pot of money in the City to go untouched is like expecting ants to ignore a dollop of jam. But I hope the £144m fund set up to compensate victims of the split-capital investment trust scandal turns out to be an exception.

Roughly 50,000 people in the late 1990s were persuaded to invest in splits, which were usually billed as low-risk. One trust was advertised with the slogan "As many safety features as a Volvo". In fact, they were highly geared bets on the stock market not falling. It did. And the deception was all the more serious in light of the alleged collusion between the directors of different split trusts.

The Financial Services Authority dropped its criminal investigation last year in order to get the industry to chip quickly into a compensation pot. That pot, Fund Distribution, has just set out how it will handle claims.

If it wanted to give the impression of being on the side of victims, it's making a poor fist of it. Mike Ellis, the former Halifax banker who runs it, refuses to disclose any detail on costs, except that he hopes the interest on the £144m will cover the operating expenses. I should hope so; the interest is £580,000 a month. Nor will Ellis disclose how much he's being paid. I just hope he isn't on his normal rate: he was paid £1.02m last year and has a £7.2m pension pot.

The company deems it necessary to use not one, but two PR consultancies. One of them, Polhill Communications, worked on behalf of no fewer than four of the firms responsible for the scandal in the first place - New Star Asset Management, F&C Asset Management, Framlington Investment Management and Edinburgh Fund Managers. It is a perfectly good PR outfit. But isn't it unseemly that the spin-doctors who puffed up these firms and their products are now winning fees from the compensation fund, and probably getting them long before any victim sees a penny? The first payouts aren't scheduled until the end of the year.

Ellis won't even say where the £144m is deposited. Surely the funds haven't been placed with one of the three banks - ABN Amro, HSBC and UBS - that were implicated in the scandal?

The officers are turning on each other. John Sunderland, chairman of Cadbury Schweppes, launched a salvo of missiles at institutional investors the other day, accusing them of being secretive, unaccountable and opaque. Sunderland, who is also CBI president, speaks for the bosses of blue-chip companies that are obliged these days to disclose more than they would like.

Being a plc chief is more lucrative than ever, but it is not as comfortable, nor as long-lasting, and you have to conduct yourself under a more or less permanent spotlight. The pressure for all this has come from institutional investors, bankers and hedge funds. Mostly secretive and publicity-shy, they are in no position to lecture the rest of us on transparency. Sunderland wasn't so crude as to accuse the City of hypocrisy, but you could interpret his speech to the Investor Relations Society that way: "The corporate sector is now far better governed and audited and transparent. If we want our capital markets to be effective and efficient, we should seek the same standards from those who own our companies." It's hard to argue, especially when a secret dossier, making its way around the City, is accusing one large investment bank of an unhealthily cosy relationship with a hedge-fund manager.

The bank emphatically denies any impropriety and says the dossier is nothing but a dirty tricks campaign. But the main thrust of the accusations, that investment banks are favouring hedge funds (which bring in vast fees) at the expense of other clients, chimes with the suspicions of many people.

Sunderland is right to air these concerns. But what he did not say was that it is in the gift of himself and his peers to do something about it. It is the large pension funds of organisations such as Cadbury that carry the weight to bring about reform. One reason why fund managers, hedge funds and the entire investment apparatus remain so opaque is partly, I'm afraid, that corporate masters like Sunderland have failed to hold them to account.

Thirty years ago, on 24 April 1975, the government announced plans to invest £1.4bn in British Leyland and Longbridge. It saved a lot of jobs at the time. The cost, though? Without that extra government borrowing, the saved interest would have left public finances £17.8bn better off today - more than enough to cover the shortfall facing the next government. And if Harold Wilson - not a likely prospect, this - had invested the money in the stock market, it would be worth £197bn, enough to fund the entire health service for three years.

Patrick Hosking is investment editor of the Times

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