Invesco Perpetual Enhanced Income lines up potential new managers

Invesco Perpetual Enhanced Income's board said more than four "highly credible" asset managers have submitted proposals. These all involve lower fees than the trust currently pays Invesco Perpetual, ranging between 0.35 per cent and 0.83 per cent. The trust paid Invesco Perpetual 1.86 per cent in its last financial year.

Fee proposals from potential new managers

Source: JP Morgan Cazenove, broker to IPE. *Based on net assets of £122m at 30.04.2018

Most of the proposed fees were also below 0.77 per cent, the revised level of fee Invesco Perpetual had agreed to before its resignation, according to the trust's board. And none of the proposals included a performance fee, a feature of the current structure which amounted to 0.93 per cent in the trust's last financial year.

Despite this, Invesco Perpetual Enhanced Income's board said it would consider a revised fee proposal from Invesco Perpetual, whose highly regarded co-heads of fixed income, Paul Causer and Paul Read, have run the trust since 2001. But this would be on the condition that Invesco Perpetual, which owns 16 per cent of the trust's shares and is its largest shareholder, withdraws a requisition to remove the trust's chairman, Donald Adamson, and fellow board member Richard Williams. A general shareholder meeting for shareholders to vote on the requisition must be held by 22 July 2018.

Invesco Perpetual and shareholders Practical Investment Fund (GB0006982671) and GAM Star Credit Opportunities Fund (IE00B54L8Q54) collectively own 25 per cent of the trust's shares and propose that Mr Adamson and Mr Williams are removed from the board and that two new directors, Hazel Adam and Howard Myles, are appointed. 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). 

However, wealth manager Brewin Dolphin, which owns 2.5 per cent of the trust's shares, does not support these actions.

Guy Foster, head of research at Brewin Dolphin, said: "We can find no justification for Invesco Perpetual's decision to abandon negotiations, and subsequently use its status as the largest aggregate holder of shares (on behalf of its clients) to seek the removal of two of the directors. We cannot support the removal of board members under such circumstances and would urge parties to return to good faith negotiations, or otherwise leave the board to continue working to reduce fees and shore up the uncovered distribution for the benefit of shareholders."

Mr Adamson said it was up to Invesco Perpertual if it wanted to return to negotiations, but also highlighted that potential offers from other managers could be better value and offer better performance. He argued that Invesco Perpetual's performance was "not exceptional" compared with that of some of the managers that have submitted proposals, if you compare performance without taking into account the use of leverage (debt), which can enhance returns in rising markets but exacerbate losses when markets fall.

"Invesco may claim it was top of the pack but a lot of the reason for that is the leverage," said Mr Adamson.

As the trust is majority owned by private investors via investment platforms or wealth managers, shareholder turnout at the meeting to vote on the requisition is likely to be low, meaning the Invesco-led consortium should have considerable clout.

"This is a very cynical exercise by Invesco Perpetual and a couple of its close associates to use the concentrated voting right power they have to the detriment of the [private] investors," said Mr Adamson. "A self-interested onslaught on a board doing its duty trying to get the best possible deal. We are looking at [replacement] managers who are highly credible and every single one is willing to undertake this mandate for a lot less."