Baillie Gifford wins European Trust – The board of The European Investment Trust has entered into heads of terms to appoint Baillie Gifford & Co Limited as the company’s new AIFM, company secretary and administrator. The company has given notice to terminate the appointment of Edinburgh Partners. The decision came after an extended run of poor performance and a persistently wide discount.
The investment objective will change, targeting investment returns primarily from capital growth, and the investment policy will be amended. Baillie Gifford will invest in European growth companies, with typically between 30 to 50 stocks in the portfolio (up to a maximum of 60 positions) and with a minimum market capitalisation of approximately EUR500 million. It is intended that the portfolio will, over time, potentially include unlisted investments, up to in aggregate 10% of the value of the portfolio (measured at the time of acquisition). Under the company’s current borrowing policy, the level of gearing should not exceed 20% of net assets in normal market conditions. It is intended to amend the borrowing policy to exclude unlisted investments from net assets in the calculation.
Shareholders will be asked to approve the changes to the investment policy at the Annual General Meeting to be held on 23 January 2020.
The portfolio will be co-managed by Stephen Paice and Moritz Sitte. Stephen has co-managed the Baillie Gifford European Fund since 2011 and Moritz has co-managed it since 2014.
Stephen is head of the European Equity Team and a member of the Global Stewardship Portfolio Construction Group. He joined Baillie Gifford in 2005 and spent time in the US, UK Smaller Companies and Japanese Equities Teams before joining the European Team in 2010. Stephen graduated BSc (Hons) in Financial Mathematics in 2005 from Glasgow Caledonian University.
Moritz joined Baillie Gifford in September 2010 and is an investment manager in the European Equity Team. He graduated BSc in Business Administration from the University of Regensburg, Germany in 2009 where he took part in the Honours Elite Degree Programme. Moritz then went on to complete an MSc in Finance and Investment at the University of Edinburgh in 2010.
The Baillie Gifford team managed European assets of approximately GBP3 billion as at 30 June 2019 and works closely with Baillie Gifford’s global and international investment managers. In aggregate, Baillie Gifford managed a total of approximately GBP44 billion of European investments as at 30 June 2019.
Over the three, five and ten years to 30 September 2019, the Baillie Gifford European Fund (B Accumulation share class in sterling) delivered cumulative total returns of 32.2%, 82.3% and 195.4%, respectively. Over the same periods, the All-World Europe ex UK Index delivered total returns of 33.1%, 59.3% and 114.6% respectively.
Expected Timing
As set out above, Baillie Gifford’s appointment will only become effective upon the satisfaction of certain conditions. These are expected to be completed no later than the expiry of the three month notice of termination served on Edinburgh Partners.
Change of name, ticker and registered office
Upon Baillie Gifford’s appointment becoming effective, applications shall be made to change the name and ticker to “Baillie Gifford European Growth Trust plc” and “BGEU”, respectively, and its registered office address so as to take effect as soon as reasonably practicable.
Fees and transition costs
Baillie Gifford will be paid an annual management fee of 0.55% of the lower of (i) the company’s market capitalisation and (ii) the net asset value (which shall include income), in either case up to GBP500 million; and 0.50% on amounts above GBP500 million.
In order to offset any payment to the existing AIFM in respect of the termination of its appointment and to contribute towards the other costs of implementing the proposals set out in the heads of terms (including portfolio transition costs), Baillie Gifford has agreed to waive the management fee payable to it for the aggregate period of six months from its appointment as AIFM.
Baillie Gifford will also contribute GBP100,000 in relation to the company’s approximate contribution to the marketing programme undertaken by Baillie Gifford for all of its managed investment trusts (for the period to 31 December 2020) and has committed to directly spending a minimum of GBP100,000 on marketing the company during this period. The company shall bear all the remaining costs associated with the proposals.
The investment management agreement shall be terminable by either party serving three months’ notice.
Tender Offer
Following discussion with the largest shareholders, the company will propose a tender offer for 10% of its ordinary shares in issue at that time and at a 2% discount to the prevailing cum income net asset value per ordinary share. The tender offer will require shareholder approval and it is proposed that the relevant authority will be sought at the AGM in January 2020.
Board changes
Sue Inglis has informed the company that, owing to her position as senior independent director of Baillie Gifford US Growth Trust plc, she will step down from the board of the company prior to Baillie Gifford’s appointment becoming effective. She recused herself from the decision to appoint Baillie Gifford as AIFM to the Company. It is the board’s current intention to appoint a director to replace Ms. Inglis.
EUT : Baillie Gifford wins European Trust