Unicorn AIM VCT investors told to reject 'suspect' fee changes

The UK Shareholders Association (UKSA) has urged shareholders in the Unicorn AIM VCT to block proposals to change the fee structure when they vote on the future of the vehicle next week.

While it agrees with the majority of the plans to combine the VCT with the Unicorn AIM VCT 2 - which has the same investment manager, investment policies and common advisers - UKSA has said the proposal for changing the performance incentive was 'suspect'.

Unicorn said in its proposals that it wished to revise the performance incentive so that the firm was entitled to 20% of any cash distributions made to shareholders above the target return of 6p.

However, Dr Paul Castle and Ian Read - founder members of the Artemis VCT shareholder action group within UKSA - have attacked the revised management arrangements (RMA) for lacking detail, and not being in shareholders' interests.

They said the changes would transfer material shareholder value to the manager by means of a new performance incentive fee, with the basic annual fee remaining unchanged.

Castle said: 'The RMA proposals for the merged Unicorn VCTs seem to be another example of directors of VCTs recommending measures that are not in shareholders' best interests.'

Castle explained that, having carried out an analysis of the Unicorn RMA proposals, in respect of the VCT I Ordinary and S2 shares, the changes could mean the merged product ends up paying out substantial performance related fees that would not have been payable under the original arrangements.

'On the basis of the analysis of the proposals we have carried out we believe that material value will be transferred to the fund manager at shareholders' expense. We believe therefore that, whilst voting in favour of the merger per se, shareholders should reject the RMA proposals set out in resolution four of the imminent extraordinary general meeting (EGM),' he said.

Castle and Read are no strangers to battling firms over changes to fee structures. Last year they unsuccessfully campaigned to block a change in remuneration of two merging Artemis VCTs.

They complained that the change, made when markets were at a low, was too generous to the fund managers as it included no performance hurdle and would allow the manager to benefit from the rise in the stock market from its nadir.