Update: Gresham House slams ‘inadequate’ review that led to investment trust sacking

Boutique asset manager claims proposal has over 40% support from shareholders

Gresham House has slammed the review that led to it being sacked as the manager of a UK smaller companies trust, stating a growing number of shareholders support its calls to liquidate the vehicle.

The board of Gresham House Strategic (GHS) announced it was undertaking a strategic review of the £66m trust back in May, which had struggled to attract assets due to its stubborn discount.

After concluding the review earlier this month, Gresham House Asset Management (GHAM) was booted off the mandate and replaced by Harwood Capital with former GHS lead manager Richard Staveley returning to manage the trust once again.

Today Gresham House has finally broken its silence on the outcome of the five-month long strategic review, claiming it “failed to deliver an agreed solution for all its shareholders”, a new chair for the board or address governance issues that it had previously raised.

The London boutique said the “inadequacy of the consultation” is evidenced by the fact that five out of GHS’ top institutional shareholders, itself included, do not support it. Together they represent 43.7% of GHS’ total issued share capital, with Gresham House owning the largest stake at 23.4%. However, on top of this Gresham House’s employees own 1.4% and its investment committee holds a 3% stake in the trust.

Harwood had offered to snap up Gresham House’s entire stake in GHS at a price equal to the latest published NAV per share. However, Gresham House’s board said all shareholders should be given the option to realise their holdings.

As such, Gresham House has requisitioned an emergency general meeting calling for the liquidation of the trust over a 24-month period and for GHS to immediately return cash on its balance sheet to shareholders. It said the rebel shareholders have signed “irrevocable undertakings” to vote in favour of the EGM proposals.

“The consultation process by the GHS Board was clearly inadequate and its outcome is unsatisfactory to at least 43.7% of its shareholders,” Gresham House chair Anthony Townsend said.

“The Gresham House board has therefore requisitioned a meeting of GHS’ shareholders to address this issue democratically and to reach a conclusion that is in the interests of all its shareholders.”

See also: Richard Staveley returns to helm GHS trust as Gresham House sacked

Battle with the board drags on

The independent directors said they were “disappointed” to receive a second requisition notice from Gresham House.

In May, the London boutique called a general meeting to vote on a proposed board shake-up over longstanding governance concerns, including the 18-year tenure of chairman David Potter. However, it dropped its request after Potter bowed out in June. 

Helen Sinclair, interim chair of GHS, said: “The independent directors believe that a substantial proportion of shareholders wish to retain a continuing investment in this company, are supportive of the existing investing policy, and are supportive of the board’s proposals as regards the future management of the company.

“We feel that these views should also be taken into account, although we do take note that the company’s largest shareholder and a number of other shareholders are indicating that they would like the company to be run-off and capital returned to shareholders.”

Sinclair added that Gresham House’s proposed board changes are “an unnecessary intervention” given the board “a substantial way through the process” of appointing a new independent chair.

The fund group is pushing for Philip Pickard and Simon Pyper to be appointed as non-executive directors with immediate effect and for current non-executive director Charles Berry to be ousted.

The board believes these resolutions would go against the principles of the AIC Code of Corporate Governance, as it means Gresham House would have nominated most of the trust’s directors.

Gresham House demands further performance fees

Gresham House AM has so far not agreed to the transitional services agreement which would see it “hold and maintain” GHS up until the Financial Conduct Authority approves Harwood as the trust’s new manager.

In addition to hitting the investment company up for a £2.6m performance fee it says it is owed, Gresham House AM wants a further fee for the hold and maintain period, which the board has not agreed to on the basis it is unlikely to make any material investment decisions over the period.

The board said it would consult with Gresham House and the trust’s other shareholders and would make a further announcement in due course.

A full breakdown of Gresham House’s resolutions are included below:

-That GHS immediately returns the cash on its balance sheet (including the proceeds arising from the disposal of its interest in Augean plc) to its existing shareholders;

-That GHS shall commence the complete realisation of GHS’s assets to maximise the value of its assets for the benefit of all its shareholders, with such realisation and return of capital to shareholders to be completed within 24 months of the requisitioned meeting;

-That Philip Pickard be appointed as a non-executive director of GHS with immediate effect;

-That Simon Pyper be appointed as a non-executive director of GHS with immediate effect;

-That Charles Berry be removed as a non-executive director of GHS with immediate effect; and

-That any person appointed by the directors as an additional director pursuant to GHS’s articles of association between the date of the requisition and the conclusion of the requisitioned meeting be removed from office as a director of GHS.

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