Invesco Perpetual UK Smaller Companies (IPU), one of the best small-cap trusts of the past five years, is set to shrink by nearly 40% after shareholders chose to participate in the tender offer launched last month.
Although the fund's market value will fall from £245 million to £154 million, enough to push it off some wealth manager buy-lists, Numis Securities said it was encouraging the offer was undersubscribed.
Holders of 38.3% of IPU's share capital elected to sell back shares at the tender offer, slightly less than the 40% the company was offering to repurchase.
A total of 20.4 million shares will be purchased once sufficient underlying investments have been sold by fund manager Jonathan Brown. Investors who sold will receive their share of the trust's net asset value (NAV) minus realisation costs and a 1.5% exit charge.
As some shareholders chose not to sell their shares or tendered less than they could, those who tendered more will see their offering sold in full.
The lack of demand for the tender offer is striking given over 16% of the shares were held by value investors such as 1607 Partners and Lazards, who it is thought would have jumped at the chance to exit at close to NAV.
The tender offer followed a pledge by the board in 2012 to give investors an exit opportunity at the 2017 annual general meeting, a move it hoped would help narrow the wide discount - or gap - between the share price and NAV.
Two years later it followed up with a decision to double the dividend to attract income investors and stoke demand for the shares.
These measures combined with share buy-backs and strong growth in Brown's stock picks, succceeded in re-rating the shares, with the discount narrowing from 18% to 2.3% earlier this year. It subsequently widened again to 6.5% although this is less than its sector average of 12%.
The trust's share price has risen by 35.1% over the past year alone, outpacing a 27.5% gain by the FTSE Small Cap (excluding investment companies) index. Over five years, shareholders have enjoyed a 182% return, which compares to 139.5% by the index.
A further range of options will be put to shareholders around the time of the 2020 AGM, the board said.