The only way to protect against an IT falling to a discount due to the manager leaving is the same as protecting against changes to the discount/premium for any other reason: don't buy investment trusts. Or, just stick to those ITs that act like quasi-open ended funds, such as Personal Assets - whilst recognising that their particular discount control implementation is open to being altered in the future.
Investment companies can go bust, usually by taking on too much gearing and the value of the assets then falling substantially, causing loan covenants to be breached meaning that assets have to be sold in order to pay back the loans - if they can't be re-scheduled. Even if they can, this might just be a stop-gap and there are no guarantees that the shareholder will be left with any value once the loans are paid back. Invesco Property Income and Alpha Pyrenees are two that spring to mind.
The solution? Avoiding high levels of gearing which might need to be repaid before the end of the term should the value of the assets fall to below a certain level. Especially if those assets are illiquid and where forced sales need to be made at a time when others are doing the same.
Another way for shareholders to lose their money is if the IC has very large allocations to very few holdings: If a holding goes bump then the viability of the IC might be affected. PSource Structued Debt is an example. The major holding folded and the value of the remaining holdings were insifficient to leave much for shareholders once all other liabilities had been paid.
Solution. Apart from the obvious one of avoiding such entities, hunt down the accounts and other regulatory filings for the major holding(s) to see what they have to say: these might give a substantially more brutal picture of the situation than does the rose-tinted output from the IC manager, which may gloss over some of the nasties until it is too late.
As for anything else, check out the current situation with The Ottoman Fund, trading in which is currently suspended.
A summary might then be: be careful when there is a very high level of gearing; the IC invests in esoteric or illiquid assets; there are multiple legal juristrictions involved (listed in one location, domiciled in another, the manager in a third and the assets in a forth, etc).
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Note that the return that an investor makes will be dermined by the price paid to purchase and the price received upon sale, and not by changes from a discount to premium or vice versa. It is quite feasible to buy at a discount and to sell at a premium and to still make a loss. Equally, a purchase made at a premium and sold when there is a discount can still have made a profit if the price at sale is higher than the one at purchase.
Too many times, the assumption is made that a price moving to a discount means that it is now lower than at purchase, or a price moving to a premium is now higher. This might be the case over shorter periods, but not necessarily so over longer - short-term speculation versus long-term investing. I have seen cases where an IT has moved to a premium and by the time a discount next appeared the price was around 50% higher.
