Paul Read and Paul Causer say that they have resigned as managers of Invesco Perpetual Enhanced Income (IPE) due to an "untenable" working relationship with its "overly aggressive" board rather than because of fees. It is the first public statement from the investment trust's managers, who are co-heads of fixed interest at Invesco Perpetual, since they resigned in April after negotiations with the board over a proposed new fee arrangement broke down.
The Financial Conduct Authority (FCA), meanwhile, has requested information regarding the dispute although it is not clear what it could do, as IPE is domiciled in Jersey and does not come under its remit.
Since the resignation, Invesco Perpetual, which owns 17 per cent of IPE's shares, and large shareholder Practical Investment Fund (GB0006982671) have issued a requisition to replace its chairman Donald Adamson and director Richard Williams with their suggested independent candidates, Hazel Adam and Howard Myles. Shareholders will get to vote on this at an extraordinary general meeting on 20 July.
IPE's board wants to introduce a lower fee structure, which would include scrapping the performance fee. During the trust's last financial year to 30 September 2017, its ongoing charge was 1.24 per cent, but with the performance fee added on this rises to 2.16 per cent, according to Morningstar.
Mr Read and Mr Causer argue that the trust's share price return of 108 per cent over the past 10 years means their management services have represented good value for money, and that they had agreed to cancel the performance fee and reduce the annual management fee before they resigned. And after they had agreed to this, the trust's board attempted to insert additional changes to the investment management agreement that had not been discussed and presented it to them on Monday of Easter week with only 48 hours to decide on whether to accept it. "We decided that this was not a board that we could or should continue to work with," added Mr Read and Mr Causer.
The trust's board argues that it started negotiating the terms of its investment management agreement with Invesco in November 2017, most notably the level of management fees being paid and the removal of the performance fee. But despite good faith negotiations, Invesco Perpetual subsequently resigned. And although it offered Invesco Perpetual the opportunity to reapply for the position when it invited proposals from potential new managers, it declined. Several asset managers have applied to take over the trust with most submitting lower fee proposals than the 0.77 per cent agreed with Invesco Perpetual before it resigned.
IPE's board says that it "is now being pressured by a very large asset manager. This is a cynical attempt to use concentrated voting power against retail investors who as platform registered owners or wealth management clients constitute the majority of the share register. The requisition can only be seen as an attempt to subvert the rights of the independent directors to run the [trust] in the best interests of shareholders."
Two-thirds of the trust's shares are held by private investors via investment platforms such as Hargreaves Lansdown or wealth managers, and most of them don't exercise their right to vote. For example, only 9m out of a potential 165m votes were cast at the last general meeting .
Invesco Perpetual has never used its voting rights before but intends to next month, and has around 27.8m votes.
However, even if Mr Adamson and Mr Williams are ousted, four members of the current board will remain in place, and they have backed Mr Adamson and Mr Williamson since the dispute with Invesco Perpetual began.
Since Invesco Perpetual's resignation IPE's share price has fallen 9.2 per cent and the trust has gone from an 8 per cent premium to net asset value to a 1 per cent discount.
Guy Foster, head of collective funds at wealth manager Brewin Dolphin, which owns 2.5 per cent of IPE's shares, said the ideal solution would be for Invesco Perpetual to continue managing the trust for the 0.77 per cent fee that it had agreed.
"I don't think it's controversial to suggest the fees were too high, or poorly structured," he says. "If you have 2 per cent [in fees] withdrawn from capital in a year where the dividend was uncovered, it is clear you're on a route to a bad outcome for shareholders. But it does not look like a reconciliation is happening."
