Dexion Commodities looks to wind up as activist investors pile in

Fund of hedge funds investment trust Dexion Commodities is on the brink of winding up following pressure from activist investors.

The £48 million listed investment company has seen activist investors build up a stake of 20% and this, combined with an imminent continuation vote and lacklustre performance run, may have forced the trust’s board to consider closing.

Over three years Dexion Commodities has seen its net asset value (NAV) per share slide 12.84%, while its share price, which currently stands at 91.50p, fell by some 16.2%.

Analysts at Numis said the decision taken by the board is wise, as with assets under £50 million across its three share classes the vehicle offers little liquidity.

‘The board’s options were limited because the fund only has assets of £48 million, therefore it was not able to return a significant amount of capital,’ Numis said.

'The recent entry of active value investors who have taken stakes in excess of 20% of share capital is likely to have increased the pressure on the board to take action, as well as the continuation vote which was likely to be triggered in early July 2011,' Numis added.  'Even so we are pleased the board has taken action early.'

Dexion Commodities’ underlying portfolio is, however, very liquid, with the investment adviser expecting that 98% of the portfolio will be realised by 30 April 2011, with payments following shortly.

The remaining assets include some pre-reconstruction positions that are already being wound down.  The shares will remain listed as long as they meet the listing requirements.

Further consolidation on the cards

Further consolidation in the fund of hedge funds space is expected, and to an extent, the anticipated compression is already underway following an announcement by FRM Credit Alpha in November detailing its intention to start a managed wind-up.

An estimated 10 funds already face a continuation vote in 2011 and other poorly performing vehicles are likely to face pressure to wind up.

Many of these have been unable to recover from the liquidity crisis that hit the sector between 2008 and 2009, when more than £1.7 billion in investor funds fled the sector.