The former chair of Gresham House Strategic (GHS) has penned an open letter to shareholders urging them to vote against proposals brought forward by sacked manager Gresham House Asset Management to liquidate the trust, which he claims is being “driven by pique at losing the valuable management contract”.
The board of GHS has been engaged in a bitter dispute with GHAM over the trust’s future. Following a five-month strategic review, it had lined up Harwood Capital to replace GHAM on the trust, which had struggled to attract assets and contain its widening discount. But GHAM threw a spanner in the works after it garnered support from shareholders, representing half of the trust’s issued share capital, to liquidate the trust instead.
GHS chairman David Potter, who resigned in June but still owns 21,287 shares in the trust, claimed that “the interests of all shareholders and especially private individual shareholders have not been properly focussed on”.
“For reasons that have not been made clear certain (unspecified) institutions gave GH irrevocable undertakings to support their wind-up proposal,” Potter wrote.
“I believe that GH’s motives in proposing the wind up were driven by pique at losing the valuable management contract and a need for cash to support their business ambitions, neither of which affect the remaining 77% of the GHS shareholders. You will note that Harwood, the new manager, did offer to buy GH’s stake (so that it was not an overhang on the market) and give the vote of most of their shares they offered to invest in, to the board to mitigate the conflict of interest issues highlighted.”
See also: Gresham House Strategic to be wound up after board review crumbles
Conflict of interest
Potter said that GH had a conflict of interest between its role as manager and as a shareholder. GHAM remains the largest shareholder in the trust with a 23.4% stake. On top of this GH’s employees own 1.4% and its investment committee holds a 3% stake in the trust.
He also noted its CEO Tony Dalwood, who was a co-manager on the trust, had a “significant personal financial interest” in the performance fees paid by shareholders. Dalwood received £366k of the £1.9m in performance fees paid in 2019, Potter said, as well as an unknown percentage of the £2.3m first fee payment in 2021 and “presumably another share of the miscalculated second fee GH recently invoiced of c.£2.6m”.
Potter said Dalwood “refused to engage with an investor” to discuss proposals around enlarging the investment company and reducing fees in January, even though the board felt discussions were worth exploring.
Months later, GH called for a shake-up of the trust’s board and Potter’s removal due to governance concerns.
“GH voted in favour of the re-appointment of all the directors and the adoption of the report and accounts at every AGM since the company was started in 2015,” Potter said.
“Raising the spectre of ESG tenure issues when seeking my recent resignation, was a smokescreen for disliking the board’s independence in considering these proposals which did not suit GH’s commercial interests.”
See also: Gresham House Strategic NAV overstated by £1.3m since July
‘Breakdown of trust’
He reiterated there has been a “breakdown of trust” between GH and the board, which is evidenced by three chairs resigning in the last six months and added there is a “real risk to shareholder value from announcing a forced sale” when the portfolio holds relatively illiquid shares.
An alternative would be to offer shareholders a “roll-over fund” where they are “not forced to lose their investment for an uncertain return over an uncertain period”.
He also invited private and institutional investors to contact him on david@davidpotter.org.
Portfolio Adviser sister title ESG Clarity contacted Gresham House which provided this statement: “Gresham House believes that corporate governance principles were not properly observed by GHS in the conclusions of its strategic review. The inadequacy of the consultation process is clear in light of the fact that it is not supported by five of GHS’ top seven institutional shareholders, comprising 47% of GHS shareholders.
“These shareholders have asked for a wind down and want their money back. They have called for liquidity for all, as opposed to simply Gresham House as proposed by the strategic review, and they have expressed concern about corporate governance at GHS. They believe a vote is a democratic way for shareholders to make a decision on the future of GHS in the absence of strong governance from the board.
“Gresham House has always been focused on creating shareholder value and remains committed to this principle. GHS has delivered standout performance versus peers since Gresham House was appointed investment manager in 2015, delivering a share price total return of 79.9% over three years and 126.8% over five years (the UK Smaller Companies AIC sector, delivered 32.3% and 96.8% respectively). This has generated outperformance of 47% and 30% for shareholders.”
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