‘Cutting away the fat’: Investment trust selectors ‘applaud’ decision of Chrysalis’s board

Chair Andrew Haining told Portfolio Adviser that the move provides ‘a better structure’ to shareholders


Chrysalis investment trust (CHRY) – a £405m company that invests in later-stage private equity firms – will “stand to benefit” from its investment managers Richard Watts and Nick Williamson leaving Jupiter Asset Management and setting up their own entity to look after the trust, according to several investment managers.

Yesterday morning (27 November) it was announced that Chrysalis’s co-portfolio managers would leave Jupiter Asset Management in order to set up their own independent investment advisory firm from 1 April next year, in order to focus solely on the management of the trust’s portfolio.

See also: Chrysalis to leave Jupiter and poach managers to create new entity

Data from FE Fundinfo shows that, over three and five years respectively, the investment company has lost a respective 51.2% and 34.6% over three and five years, with the company holding a concentrated portfolio of between 10 and 15 stocks at any one time. AIC data shows that the trust’s discount to net asset value stands at 49.6%.

Andrew Haining, chair of CHRY, told Portfolio Adviser that the move provides a “better structure” to shareholders.

“From a practical perspective, I think Jupiter has various things it’s trying to do at the moment in terms of the way it’s driving its business forward, and [CEO] Matthew Beesley is approaching that with the right interests for Jupiter’s shareholders”, he said.

“From our perspective, it was better to make a natural break at this stage, as we approached the continuation vote, to bring that management in house. There are plenty of successful examples of house-managed vehicles such as these that manage assets for the longer term. And I think it is difficult sometimes to manage those within a within a public company structure.”

He added: “From our perspective, it was a natural progression. Discussions with Jupiter have been very open and friendly.”

Richard Parfect, portfolio manager at Momentum Global Investment Management, said the news is “not surprising” and has been “encouraged by shareholders”.

“We have reason to believe that Chrysalis will stand to benefit from a larger resource base under the new management arrangement, plus there is scope for an economic benefit in terms of its future management fee should the new management company be successful and grow its franchise with third party capital,” he said. “In essence, we feel CHRY is emerging from its difficult growing pains and the management contract is part of that process as well as improvements within its portfolio.”

Shavar Halberstadt, equity research analyst at Winterflood Securities, concurred that he “supports the board’s efforts to incorporate shareholder feedback in their proposals ahead of the continuation vote”.

“The proposed configuration offers a degree of continuity, while separating the operation from Jupiter’s institutional setup,” he reasoned. However, the analyst argued that he would “like to see additional reasoning as to why this particular setup would enhance performance”.

“At this stage, we suggest withholding judgment until there is more clarity on the resources that will be in place.”

David Johnson, senior investment analyst at QuotedData, said the board has opted for a route that ”seems to preserve the essence of Chrysalis while cutting away much of the fat”.

He said: “The Chrysalis managers’ day-to-day activities will be more focused on producing better results for shareholders.

“CHRY’s approach should benefit as dampening inflation allows for lower interest rates. Irrespective of those potential gains, the savings from the revised Jupiter fee structure is good news for shareholders.”

Ben Mackie, fund manager at Hawksmoor Fund Managers, concurs that the move is the right one for shareholders and that he “applauds the board for the thorough and diligent shareholder consultation it has undertaken”.

“With the shares trading on such a wide discount, the formulation of a capital allocation policy that balances the funding needs of underlying portfolio companies with the highly accretive impact of buying back shares is the right focus,” he told Portfolio Adviser.

In addition, he said the board’s decision to reduce the firm’s management fee from 50 basis points to 15 basis points, which will save Chrysalis shareholders approximately £1.4m to the end of March next year, was “pleasing”.

“[We] believe the new manager arrangements will offer confidence over the resources available to the trust, either as an ongoing entity, or in the event of a managed wind-down. A not immaterial saving on management fees in the period up to next March is also a positive,” he explained.

“More broadly, we believe the current discount offers value, particularly in light of rebased valuations and operational progress at key holdings.”

However, he pointed out that the “main point of concern is Jupiter’s large stake in the investment company, given that redemptions from the open-ended funds in Jupiter’s suite which own CHRYS “result in an ongoing overhang and selling pressure”.

“This has been an issue for some time, and we are not sure the change in manager arrangements materially alter that risk,” Mackie added.