Invesco Perpetual tries to unseat investment trust chairman

It is understood that Invesco Perpetual, which holds 17 per cent stake of the fixed income trust's shares, in conjunction with two other shareholders has requested a shareholder general meeting. And at the meeting it will propose removing the trust's chairman Donald Adamson and Richard Williams, chairman of the management engagement committee.

It also proposes appointing two new directors to the trust's board – Hazel Adam and Howard Myles. Ms Adam is a non-executive director of Aberdeen Latin American Income Fund (ALAI) and Mr Myles is chairman of Aberdeen Private Equity Fund (APEF).

Invesco Perpetual, together with Practical Investment Fund (GB0006982671) and GAM Star Credit Opportunities Fund (IE00B54L8Q54), holds about a quarter of Invesco Perpetual Enhanced Income's shares. Invesco Perpetual is currently serving out a 12-month notice period as manager of the trust.

This comes after a breakdown in negotiations in April between Invesco Perpetual and the trust's board over fees. Invesco Perpetual Enhanced Income's board wanted to reduce the management fee it pays to Invesco Perpetual, which resulted in Invesco Perpetual resigning as the trust's manager – an unprecedented situation.

The trust's ongoing charge plus performance fee added up to 2.16 per cent at the end of its last financial year – far higher than the charges of many bond funds. The trust's chairman Mr Adamson said they were looking to reduce the fees because since 2014, when the current fee level was agreed, fees in general have moved more in favour shareholders and the existence of performance fees is dwindling.

He also said a fee cut was needed to improve the trust's dividend cover. "This would improve the long-term sustainability of the income which can be offered," he added. "This point is particularly relevant in that our dividend is not currently fully covered by earnings, although the [trust does have] significant revenue reserves."

The trust has, however, performed well and has an attractive yield of 6.6 per cent. It is run by highly regarded and experienced managers – Paul Causer and Paul Read, co-heads of fixed interest at Invesco Perpetual, alongside Rhys Davies. The trust's investments include more esoteric bonds and low-rated debt.

Mr Adamson said there has been significant interest from other asset managers in running the trust. A decision to change to a new manager does not require shareholder approval. 

Mr Adamson was going to retire from Invesco Perpetual Enhanced Income's board but has decided to stay on as chairman to oversee this process until the investment trust's next annual general meeting.

Invesco Perpetual's proposal to change the trust's board has been interpreted as an attempt to continue running the trust. Simon Elliot, head of research at Winterflood Securities, said: "There is a chance that Invesco Perpetual could eventually find itself back in situ, albeit with a revised fee structure."

He supports the firm being reappointed as manager, on the grounds that investors are likely to have bought Invesco Perpetual Enhanced Income to access Mr Read's and Mr Causer's investment skills. "This would be a good result for shareholders and a victory for common sense," said Mr Elliott. "This episode still has to play out but emphasises the need for boards to remain engaged with shareholders."

But he also thinks that the reappointment of Invesco Perpetual is far from guaranteed, as it is only attempting to replace two of the trust's five board members. Even if this happens the board might still search for a new manager, or consider other corporate actions such as a merger or wind up.

However, Mr Elliott thinks Invesco Perpetual will succeed in changing the board because of its shareholder influence.

How Invesco Perpetual Enhanced Income has performed