Strategic Equity Capital (SEC), the UK smaller companies trust rocked by the departure of star manager Stuart Widdowson last year, has negotiated a big cut in its management fees.
The company revealed in September it was discussing its costs with GVQ Investment Management and today announced that the basic annual management fee it pays had been reduced to 0.75% from 1%. It continues to be based on the lower of either the net asset value (NAV) of its investments or the market capitalisation of the company.
GVQ, which last week announced a management buyout from RIT Capital Partners (RCP), has also agreed to reduce the performance fee it can receive. If total portfolio returns over three years beat the FTSE Small Cap (ex investment companies) index it will now take 10% of excess returns, down from 15% previously.
The firm has also accepted a cap on the total fees it can receive in one year to 1.4% of SEC’s NAV. The previous 1.75% limit on the performance fee has been scrapped. In addition, it cannot carry forward any performance fee over the revised cap.
The trust has a net asset value of £185 million and a market value of £160 million.
The investment trust’s chairman, Richard Hills, said: ‘I am delighted that we have concluded our discussions with GVQIM on fee arrangements. The fee amendments bring Strategic Equity Capital’s fees closer in line to the smaller company peer group, whilst recognising the specialist, focused nature of GVQIM’s investment approach.’
According to the Association of Investment Companies, the average UK smaller companies trust levies ongoing charges of 0.87% rising to 1.1% when performance fees are included.
SEC has been managed by Jeff Harris since last February when Widdowson quit to form a new investment fund with the help of Chris Mills at Harwood Capital, manager of the North Atlantic Smaller Companies (NAS) and Oryx International Growth (OIG) global smaller companies trusts.
Harris has continued SEC’s style of taking a private equity approach to a concentrated portfolio of smaller companies, whose businesses it seeks to improve. However, the manager change has clouded the shares with their discount to NAV widening to 15% since Widdowson’s unexpected exit.
Although the shares generated a total return of 20% last year, ahead the 15.6% of its benchmark, SEC has slipped down the AIC UK Smaller Companies sector which it previously led. Over one year it lies 15th out of 19 trusts. Over five years it lies second behind Rights & Issues (RIII) with a total return of 158.4%, winner of one of Citywire's first investment trust performance awards in November.
In recent years there has been a trend for investment trusts to lower their charges and abolish performance fees as the sector has faced price competition from open-ended funds whose fees no longer include a charge for the commission once paid to advisers and investment platforms.