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GAM drops support for Invesco Perpetual Enhanced requisition


GAM drops support for Invesco Perpetual Enhanced requisition – Invesco Perpetual Enhanced has published a letter from its chairman to shareholders and an overview of the situation regarding the requisitions to be put to a vote by shareholders at an Extraordinary General Meeting in Jersey, on Friday 20 July 2018.

The requisitions are from Invesco Perpetual and Practical Investment Fund. GAM Star Credit Opportunities GBP has withdrawn its previously served requisition request.

A requisition has been served on the company by Invesco Perpetual and Practical Investment Fund asking that Donald Adamson, chairman, and Richard Williams, chairman of the management engagement committee, be removed as directors of the company and Ms. Hazel Adam, and Mr. Howard Myles, be appointed as directors.

The board believes that this requisition is firmly against the interests of the company’s shareholders. The board started negotiating the terms of its Investment Management Agreement with Invesco in November 2017, most notably around the level of management fees being paid and the removal of the performance fee. Despite good faith negotiations, Invesco subsequently resigned as the investment manager in April 2018. They did so after initially agreeing in writing to a new fee arrangement.

Following Invesco’s resignation the board invited proposals from leading fixed income managers. Invesco were offered, but declined, the opportunity to participate in this competitive process. On 22nd May 2018, the company received the aforementioned requisition demanding removal of Donald Adamson and Richard Williams.  It is the board’s view that if Invesco had fully engaged with the board during this process, it would understand the purpose of, and need for, an independent board for the successful running of a company.  Invesco’s actions would appear to clearly demonstrate that this is a lesson they are yet to learn.

The board believes Invesco Perpetual is using its clients’ ownership position to disrupt the tender process for a new manager. The strong proposals received by the board from a number of high-quality potential managers demonstrate the untenable nature of Invesco’s position. Every proposal received would result in lower management costs as compared to what it currently pays. No party has proposed a performance fee. Furthermore a preliminary review of 5-year performance suggests that, when measured on a like for like basis against IPE’s unleveraged performance, Invesco’s historical performance is at approximately the mid-point of the performances quoted in the proposals.

Costs matter – they go directly to shareholder returns: They influence how much income the company can distribute and what investment performance can be achieved. A further consequence of the lower fees offered by prospective managers is that dividend cover could potentially be fully restored and a positive contribution to reserves restarted, improving the long-term sustainability of the yield the company offers.

The board has behaved correctly. It first attempted to renegotiate fees with Invesco and then, when that process was rejected by Invesco, initiated a competitive and fair process for a new investment manager when Invesco chose to resign.

The board 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 board believes the requisition can only be seen as an attempt to subvert the rights of the independent directors to run the company in the best interests of shareholders.

FCA gets involved

The company is responding to a request for information from the FCA about the circumstances surrounding the requisition. The board understands that, based on previous conversations with Invesco Perpetual, Invesco Perpetual has historically very rarely voted its shares at company general meetings. Given this past prudent behaviour, the board would expect them to take a similar approach on these resolutions to ensure that the will of independent shareholders is not prejudiced.

Response from the manager

Open letter to shareholders in Invesco Perpetual Enhanced Income Limited 

Following recent commentary around our decision to resign as manager of Invesco Perpetual Enhanced Income Ltd (IPE) and the subsequent requisition notice, we thought it would be helpful to provide shareholders with an explanation of our position. This is the first public statement we have made. 

Having managed the company since 2001, we did not take the decision to resign lightly. 

We have always enjoyed managing the portfolio and its closed-ended structure, combined with an ability to employ up to 50% leverage, made it unique in our range.   The assets we manage have grown significantly over the last twenty years but IPE has always been important to us and it has benefitted from a lot of management time, including board meetings and shareholder engagement. It has also benefitted from our large and growing team of investment professionals and from the talent that we have been able to attract. 

Our track record 

We are proud of the trust’s long-term track record (standard performance data is provided below) – particularly over the period since the 2008 rights issue – and the attractive level of income that it has generated for investors in a low yield environment: the share price (after fees) has returned over 108% across the last ten years. Indeed, the long-standing shareholding in IPE by several Invesco-managed funds (investors may remember that Invesco-managed funds supported the rights issue) is one of the best investments we have made on behalf of clients.  We would note that the Board was happy to have our funds as a supportive and longstanding shareholder.  If our clients’ shareholding has been a cause for concern for the Board, it is not one they have previously raised. Indeed, the Board encouraged us to vote our clients’ shares and was happy to continue to issue shares at a premium. 

Our reasons for resigning 

Our decision to resign was not about fees. In fact, and as disclosed by the Board on 29 May, prior to our resignation we had already agreed to cancel the performance fee and to reduce the annual management fee. We reiterated this agreement when we resigned. 

Of course, we were in favour of keeping the performance fee. We thought it made sense for the trust due to the complexity of managing leverage and targeting an above-market dividend yield.  The performance fee was not structured to be achievable every year. We believe that investors would have taken the fee structure into account when buying shares. Feedback we have received from many shareholders over the last weeks has confirmed this.  Furthermore, the performance fee was supported for many years by the Board and the most recent fee arrangements were devised by the Board in 2014. 

Our decision to resign was due to the breakdown of our relationship, as Manager, with the Board and our concerns about Board governance. The manner in which the Board engaged with Invesco in the fee negotiations was, in our opinion, overly aggressive, culminating in the issuance of a 48 hour ultimatum, served to us on the Monday of Easter week. Subsequent to our agreement to the revised fee structure, there was then an attempt to insert additional, material changes to the investment management agreement that had not previously been discussed.  After considerable thought, we decided that this was not a board that we could or should continue to work with and, given that the shares traded at a premium, it was important to resign and make this disagreement public before further issuance took place. 

Our clients’ position as shareholders 

We have resigned and we expect to stop managing IPE when a replacement is appointed. Our clients’ investment in the company means that we also have a responsibility to protect their  interests. Immediately after the announcement of our resignation the share price dropped some 6%, and has continued to fall which we think reflects shareholders’ concerns about the future of the company, and represents a loss in shareholder value of close to GBP12 million. 

Following the fall in share price we were approached by a number of third party shareholders, represented by Panmure Gordon, to participate in the requisition notice. This request was submitted to our governance processes and considerable advice was taken before we agreed to participate.  We believe that this action gives all shareholders the chance to express their opinion. 

Shareholders are now faced with considerable uncertainty around who will ultimately manage their funds.  While we are in situ we continue to manage the portfolio with the care and attention we have always shown. Investors will need clarity.  In investing our clients’ funds we backed the structure and, of course, the manager. Will the new manager be able to achieve the same type of long term performance, maintain the dividend, manage the leveraged structure and restore the premium?  Or, does the Board want to take the fund in a new direction at this time? 

In recent weeks we have been in contact with many investors and we remain happy to discuss this matter with them at any time. 

Paul Read and Paul Causer

IPE : GAM drops support for Invesco Perpetual Enhanced requisition

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