In a surprise move, Strategic Equity Capital (SEC) has sacked its investment manager and shifted its management contract to Gresham House, the fast-growing investment boutique.
Gresham House already manages a trust that looks similar to SEC – Gresham House Strategic. Both funds size up potential investments the way a private equity firm would. They try to identify companies trading at a material discount to the value that a buyer would place on the business and, if they think it is warranted, they might encourage the company to take actions to enhance that value. There is a difference, however, Gresham House Strategic targets micro cap companies, while SEC is focused on larger small caps. That means that there is no overlap between the two portfolios and there is no plan to merge the two companies.
Investors in SEC, who had seen a steady improvement in its performance record over the past couple of years, might have been dismayed to read the headline. There is good news, however. The lead managers, Jeff Harris and Adam Khanbhai are moving across to Gresham with the trust. So, to a large extent it is business as usual, except that they will benefit from the depth of Gresham’s investment management team in this area.
Gresham have been building this side of their business over the years and last March they took a major leap forward with a tie-up with Aberdeen Standard Investments. This has taken some time to put to bed but it is anticipated that the process with be completed in a couple of months. The extra marketing resource that this will bring will be dedicated to driving down the discount on SEC and, in time, expanding the trust. This is great news for shareholders.
Shareholders will also be comforted that the deal has been structured with a six-month waiver of fund management fees by Gresham. This offsets the costs associated with the move.
We have written a number of notes on SEC. Last year’s annual overview note goes into detail on the investment approach.
In a market that is falling once again this morning (Friday 27 March), SEC’s shares are up 3% on the news. That still leaves them on an attractive discount, however.