Lindsell Train changes benchmark and performance fee – The board of Lindsell Train investment trust has approved the amendment of its Investment Management Agreement (IMA) which will see changes to its benchmark and the calculation of the performance fee.
The company has adopted the MSCI World Index in sterling, as its new benchmark, with effect from 1 April 2021. It considers this a more appropriate benchmark given the nature of its portfolio, which is predominantly invested in equities and is likely to remain so for the foreseeable future.
Reflecting this change, the board believes it is also the appropriate benchmark to use for the purpose of calculating the performance fee. It feels that on a historic analysis and based upon forward-looking projections prepared by Lindsell Train Limited, and considered by the board and its advisers, the performance fee payable by the trust would have been (in respect of the historic analysis) and is generally expected to be (in respect of the projections) lower than if the fee were calculated by reference to the trust’s former index, although there is no guarantee that this will be the case.
There is also an amendment to the calculation of the performance hurdle where the hurdle (whether the market cap or NAV of the trust in respect of which a performance fee was previously paid) is adjusted by excluding any dividends that were otherwise taken into account for the purpose of calculating that previous performance fee, as well as deducting the amount of the fee paid as a result of that calculation.
While the change is expected to have the effect of marginally increasing the level of performance fees payable by the company, the board is satisfied that this change is fair for shareholders and in line with standard market practice, and that the effect on the level of fees is likely to be more than offset by the downward effect expected by the change in benchmark.
In each performance period, the performance fee is payable at the rate of 10% of the difference between (a) the lower of (i) the Adjusted Market Capitalisation per Ordinary Share of the Company and (ii) the Adjusted Net Asset Value per Ordinary Share of the Company, and (b) the Performance Hurdle, if this difference is positive and provided that the lower of (i) and (ii) also exceeds a high water mark such that there must be positive absolute performance in the relevant year.
The performance hurdle is calculated by reference to:
- the Adjusted Market Capitalisation per Ordinary Share of the Company (using the average share price during the last calendar month of a Performance Period); or
- the Adjusted Net Asset per Ordinary Share of the Company,
depending on which was the lower amount when used in the calculation of the most recently paid peformance fee, adjusted to exclude any dividends that were included for the purpose of that previous calculation and to deduct the amount of the performance fee paid as a result of that calculation. That amount is then increased by the percentage performance of the benchmark (on a total return basis) in the relevant period.
The performance fee will only be paid if the change over the performance period is both above the benchmark and is a positive figure. Relative performance will be carried forward in years where Lindsell Train Limited is not eligible for a performance fee based on these two criteria.
The fee remains subject to a maximum amount that, when aggregated with the investment management fee paid over a year, shall not be equal to or greater than 5% of the lower of the NAV and the size of the trust, save that any excess performance fee may be carried forward to when a future payment is due.
With regards to the year to 31 March 2021, Lindsell Train accrued a performance fee of £5,323,404 for the year but Lindsell Train Limited yesterday offered to waive half of that fee, reducing the performance fee due for the year to £2,661,702. The calculation of the next NAV of the trust on 4 June 2021 will reflect this reduction in the fee for the year to 31 March 2021.
LTI : Lindsell Train changes benchmark and performance fee