RENN Universal Growth Investment Trust (RUG) has massively underperformed its sector peers in the AIC North American Smaller Companies sector, as well as the Russell 2000 Index of US smaller companies over the same period. It is on a discount to net asset value (NAV) of 17.79 per cent. However it has a very high ongoing charge for an investment trust of 2.27 per cent.
The investment trust is in the process of winding up, and a representative said: "With the approval of all major shareholders, the detailed process of the wind down was approved, including the manager's remuneration which is set at a fixed monthly amount ($90,000) for the anticipated duration of the wind-down. It forms the major part of the current ongoing charge.
As part of the process, it is expected that the company will make a distribution of cash in the first quarter of 2014, as liquidity increases from the sale of portfolio positions. It follows that the ongoing charge can be expected to rise as the pool of assets declines.
The portfolio is unique and contains some illiquid positions, which take time to unwind. The manager is closely involved with these situations, often represented on the board of the companies. It is essential that the manager is retained to maximise the value of those holdings.
We are making good progress in achieving the objectives set by our shareholders." After the return to shareholders next year the remaining portfolio will be concentrated on a small number of stocks making it theoretically riskier, although RENN’s board says some of these have the ability to increase in value sharply. Investment manager Russell Cleveland says that while some holdings are sufficiently liquid to allow open market sales, others will require a structural solution. At present the trust has 11 holdings.
A performance fee may also be incurred at the end of each year of 10 per cent of any amounts returned to shareholders in excess of a cash hurdle, though this will be capped at an amount equivalent to 10 per cent of NAV as at 31 March 2013.
Read our interview with Mr Cleveland in 2011
