With effect from 1 April the UK equity investment trust will no longer pay Invesco Fund Managers 10% of any annual outperformance of the portfolio over the FTSE All Share index.
Over the past three years the trust’s shareholder returns have lagged the stock market benchmark. Nevertheless, the performance fee, which was based on the underlying growth in the net asset value (NAV) of the portfolio, has been lucrative for Invesco.
In the last financial year to March 2016 it earned over £4 million in performance fees, down from £5.3 million in the previous year, which was on top of its base management fee of £5.6 million.
In future these performance related payments, which were capped at 0.5% of the trust's total assets, will not occur. However, in their place its board has agreed to raise the tiered base fee paid to Invesco.
This means the fund manager will receive 0.6% of the company’s first £900 million of assets, up from £500 million previously. Above that raised level the manager will continue to receive 0.4% a year. PLI has total assets including debts of over £1.2 billion.
PLI is the latest in a long line of trusts to drop performance fees which have become increasingly unpopular with investors for both their complexity and tendency to be seen as 'heads I win, tails you lose' arrangements to the benefit of investment managers.
In a statement chairman Bill Alexander said PLI shareholders had benefited greatly from the trust’s strong long-term performance, but added the board was ‘also mindful of the need for it to be competitive in the wider market place and responsive to that market and to shareholders.’
Barnett has run PLI since launch in March 1996, delivering a total return to shareholders of over 785%, smashing the 312% return from the FTSE All Share.
Recent performance has been more subdued though, both in comparison to rivals and also Edinburgh (EDIN), the £1.8 billion equity income trust that Barnett has also run since the departure of his former boss Neil Woodford from Invesco three years ago.
In the past three years PLI’s net asset value has grown by 28.1%, behind both the 31.5% sector average and the 41.4% from Edinburgh. One factor in the underperformance is the greater proportion of smaller companies in the portfolio, which suffered after the Brexit referendum last summer.
As a result, PLI has seen its rating slip with the discount - or gap between its share price and NAV - widening to 8.5%, more than twice the sector average of nearly 4%. This has depressed shareholder returns to just 17% over three years.
By contrast, Edinburgh, which ditched its performance fee three years ago and pays 0.55% of its market value to Invesco each year, stands on a discount of just over 4% and has generated a three-year total shareholder return of more than 40%.
Questions have been asked as to whether Barnett, who also runs the flagship open-ended Income and High Income funds at Invesco Perpetual, has too much on his plate. However, having passed Invesco Perpetual UK Select (IVPU) and more recently Keystone (KIT) to colleague James Goldstone, the manager appears intent on staying put at Perpetual Income for the time being.
In the stock market announcement accompanying the change in charges, Barnett said he was proud of the long-term record he had achieved, adding ‘I look forward to continuing to work with the board and deliver superior returns for shareholders in the future.’