Electra Private Equity (ELTA) is to reduce its fees, introduce dividends and share buybacks, and repay its debt following a review by its board. This follows a challenge by activist shareholder Sherborne Investors Management (SIGB), which proposed changes to Electra's board and a strategic review, but which was defeated at a shareholder meeting in October.
Electra does not pay dividends unless necessary to maintain its investment trust status, and has not carried out any share buybacks since 2008. However, it will now return to shareholders a targeted 3 per cent of net asset value (NAV) a year via dividends and/or share buybacks. The trust intends to declare a dividend in respect of the first six months of its current financial year in its half-year results in May.
The investment trust's annual management fee is 1.5 per cent of gross assets including cash. But from 1 April no fee will be paid on cash, and the management fee on non-core listed and primary fund investments will reduce to 1 per cent. Certain listed and primary fund investments, which account for 8.5 per cent of Electra's portfolio and are no longer part of its core portfolio, will be reduced over time thereby allowing for greater focus on direct unlisted investments.
The trust's relatively high ongoing charge of 2.97 per cent may now fall.
The trust has a multi-currency revolving credit facility and has drawn £154m of this. Electra will repay this, reducing financing costs by £4m a year, although it may draw on this facility in future. The debt repayment will, however, remove a partial foreign currency hedge so the trust will be exposed to foreign exchange volatility which may increase net asset volatility.
Analysts say the changes are generally beneficial to shareholders. However, Iain Scouller, head of the investment funds team at Oriel, says: "We do question how many shareholders will want cash back given that any distribution may not be tax efficient and also Electra's delivery of long-term returns of 14 per cent a year over the past 10 years."
Sherborne still has a large stake in Electra, having increased it from 20 per cent in October to 24.6 per cent. It has not said what it intends to do next.
