Invesco Income Growth plans merger with IP Select – The board of Invesco Income Growth Trust has agreed heads of terms with the board of Invesco Perpetual Select Trust for a merger. The scheme would be effected by way of a scheme of reconstruction under Section 110 of the Insolvency Act 1986 and a voluntary winding up of the company. This allows for a combination of the two companies without triggering capital gains tax. However, if desired, a partial cash exit option (up to 30% of IVI) will allow shareholders the option to exit part of their holding at a price close to prevailing net asset value (2.5% discount to NAV after costs).
Ciaran Mallon, the current fund manager of IVI, will be appointed as the fund manager of IP Select’s UK Equity portfolio, with IP Select’s UK Equity portfolio’s investment objective and policy changing to reflect IVI’s current investment objective and policy.
Shareholders will be able to continue with the same fund manager and investment style and the income/dividend level should be maintained. The board believes that the shares will trade at a tighter discount (IP Select’s tighter discount is supported by an active share buy-back policy).
The management fee payable on IP Select’s UK Equity portfolio will be reduced to 0.55% on net assets up to £100m and 0.50% over £100m. The current performance fee will also be removed. In comparison IVI’s current management fee is 0.60% on market capitalisation up to £150m and 0.50% over £150m.
The structure of IP Select enables shareholders to switch between geographies, asset classes and risk profiles, with quarterly conversions allowing shareholders to react to changing investment conditions.
Invesco has waived both their accrued IP Select UK Equity portfolio performance fee and their IVI termination fee, reducing any costs of the proposals borne by shareholders. A larger fund should benefit from scale, as fixed costs are be spread over a larger cost base, alongside improving liquidity and aiding marketing.
The proposals are subject to approval by the shareholders of both companies in addition to regulatory and tax approvals. A timetable and further details will be announced in due course.
IP Select
IP Select is a multi-asset class investment trust with four independently managed share portfolios: UK Equity, Global Equity Income, Balance Risk Allocation and Managed Liquidity. Its innovative capital structure permits quarterly conversions between the four share classes without triggering a disposal for capital gains tax purposes. Investors can hold one or more of the share classes, in any combination.
As at 31 October 2020, IP Select had total assets of £111.3m.
Ciaran Mallon, the current fund manager of IVI, will become the fund manager of IP Select’s UK Equity portfolio and the UK Equity portfolio will have very similar holdings to IVI’s current portfolio.
In the interests of alignment, the 0.55% management fee on IP Select’s Global Equity Income class will be amended to reflect the same terms as the UK Equity class, and its performance fee removed.
Shareholders who elect for the rollover option will have the opportunity to convert some, or all, of their holding into the other share classes offered by IP Select.
Board composition
Following completion of the scheme the board of IP Select will comprise of three directors from the current Board of IVI and three directors from the current Board of IP Select, with the expectation that the total number of directors may reduce to five in the future. Graham Kitchen will continue as chairman of IP Select.
Expected timetable
It is currently envisaged that a shareholder circular and notice of the general meeting setting out the details of the scheme and seeking shareholder approval for the cash exit and liquidation will be sent to shareholders in late January 2021. The relevant general meetings are expected to be held in February 2021.
[This is exactly the sort of tidying up exercise that the sector is often crying out for. Ciaran has stuck to a traditional style of UK equity income investing and the trust’s performance is below-average in its peer group in recent years. Invesco Income Growth has been languishing on one of the widest discounts in the sector for some time. 1607 Capital Partners, which often seeks to benefit from buying trusts at wide discounts and cashing in its stake when the discount is eliminated, is the largest shareholder. It may seek to exit at this time. Investors may be hoping that a return to a more normal economy will signal an improvement in the trust’s relative performance. Time will tell.]
IVI / IVPG : Invesco Income Growth plans merger with IP Select