Shareholders in Electra Private Equity (ELTA) investment trust have thwarted attempts by activist investor Sherborne Investors Management (SIGB) to change its board and then conduct a strategic review.
Sherborne, which has a 20 per cent stake in Electra, proposed that Edward Bramson, partner at Sherborne, and Ian Brindle, a former UK chairman of PricewaterhouseCoopers, be appointed to Electra's board. Nearly 62 per cent of votes cast were against each of these two proposals, with 38.22 per cent in favour.
Sherborne also proposed removing from the board director Geoffrey Cullinan, who chairs the management engagement committee, but 63.24 per cent of votes cast were against this, with 36.76 in favour.
More than 80 per cent of the shares voted for each resolution.
Read more on Sherborne's challenge
Although it has won Electra said that this action will cost it between £2m and £3m. Analysts at Winterflood say that this is not insubstantial even in a fund of Electra's size (the trust has assets of about £1.4bn).
However, following the vote Electra said: "As a result of discussions with shareholders over recent weeks, the board of directors is announcing that it will launch a review covering the fee arrangements with Electra Partners LLP as well as the capital structure and distribution policy of the company. The board of directors of the company recognises that these are topics of particular focus for all shareholders and that a review of them is appropriate at the present time."
The statement added that the conclusion of this will be announced as soon as possible.
Electra has an ongoing charge of 2.56 per cent, according to Morningstar data, which is high relative to mainstream investment trusts but in line with some of its private equity peers, albeit still at the higher end.
"We would expect amendments to the fund's fee structure, particularly the management fee on cash," say analysts at Winterflood. "Similarly, although the fund's zero dividend preference shares and convertible bonds do not mature until 2016 and 2017, respectively, we would not be surprised to see the board make assurances that the capital structure will be simplified in future."
Read more on investment trust share classes
Historically the trust has not paid a dividend, as its investment portfolio is not naturally income producing.
In response to Electra's review of fee arrangements, capital structure and distribution policy, Sherborne said: "As a major shareholder representing funds with a 20 per cent shareholding in Electra, Sherborne Investors looks forward to hearing more from the board of Electra about the resultant actions from this review."
Sherborne Investors has been involved in a number of UK investments in recent years including 3i Group (III) and F&C Asset Management.
If Sherborne eventually decides to sell its large stake in Electra this is likely to have a downward effect on the price of the shares until the overhang is cleared. However, Iain Scouller, head of the investment funds team at Oriel, says that it could give investors an opportunity to pick up shares in what has been one of the UK's better performing listed private equity funds.
Electra has a strong performance record and in the five years to the date of Sherborne's original announcement in February this year, its share price was up 248 per cent on a total return basis, compared with 126 per cent for the FTSE All-Share, according to Winterflood.
"We continue to believe that Electra Private Equity represents one of the more compelling options in the listed private equity sector on a long-term view. Its flexible investment approach is attractive and also differentiates it from peers," says Winterflood.
And analysts at Investec think that if the review decides that, for example, realised net cash profits should be returned to shareholders via annual tenders, share buy-backs or dividends, and the fees are reduced, there's a strong chance the shares could materially re-rate and Mr Bramson should, over time, find the liquidity to exit at a profit.
Electra trades at a discount to net asset value of nearly 13 per cent in contrast to its 12-month average of 10.79 per cent.
ELECTRA PRIVATE EQUITY (ELTA) | |||
| PRICE | 2479p | GEARING | 0% |
| FUND TYPE | Investment trust | NAV | 2910p |
| MARKET CAP | £876.16m | PRICE DISCOUNT TO NAV | 14.81% |
| SET UP DATE | 18-Feb-76 | YIELD | 0% |
| ONGOING CHARGE | 2.56% | MORE DETAILS | www.electraequity.com |
Source: Morningstar
| 1 year share price return (%) | 3 year cumulative share price return (%) | 5 year cumulative share price return (%) | 10 year cumulative share price return (%) | |
| Electra Private Equity Ord/Inc | 12.7 | 82.0 | 103.6 | 230.7 |
| FTSE 250 TR GBP | 0.8 | 56.9 | 78.8 | 201.8 |
| FTSE Small Cap Ex Invest Trust TR GBP | -0.4 | 77.9 | 65.3 | 87.3 |
| FTSE Small Cap TR GBP | 1.3 | 61.5 | 63.3 | 107.1 |
Source: Morningstar as at 10 October 2014
Top Ten direct unlisted and secondary investments as at 31 March 2014
| AXIO Data Group |
| Park Resorts |
| EP1 Secondary Portfolio |
| Hotter Shoes |
| Allen & Heath |
| Allflex Corporation |
| Peverel Group |
| Premier Asset Management |
| CALA Group |
| Daler-Rowney |
Portfolio break down (%)
| Direct unlisted at fair value | 55 |
| Secondaries | 8 |
| Funds | 7 |
| Listed | 8 |
| Net liquid assets | 22 |
