Blue Planet appears to be in dispute with big shareholder

Blue Planet appears to be in dispute with big shareholder

Minnow global trust Blue Planet, which has a market cap of about £13.6m, appears to be in dispute with one of its largest shareholders – Philip J Milton & Company. Since the arguments appear to be convoluted, we are reproducing the Blue Planet board’s statement in full below. Note, this is in response to a letter from Mr Milton which we have not seen. Some more background info – the board made some wholesale changes to the portfolio fairly recently. The trust has a free-ranging remit and so this did not have to be put to a vote. The board has just three directors. One of them is the manager – usually frowned upon by most boards – one, the chairman used to work closely with the manager at Bank of Edinburgh, although this was over 20 years ago, and the other has been on the board for over nine years. According to Morningstar, the NAV has dropped by 17.3% since the end of April 2021, taking the shine off the trust’s brief spell of decent performance. Lastly, the trust’s small size and 1.5% management fee make its ongoing charge ratio quite high – Morningstar estimates 4.3% per year.

The letter

“Dear Shareholder,

You may have received a letter from Philip J Milton of Philip J Milton & Company plc. Mr. Milton has not provided a copy of his letter to the Company although other shareholders did on the day they received it. We are grateful to them for that. The Board’s advice is that you ignore it. It misrepresents the facts, and we refute his assertions.

In particular, the Board would like to refute the following points in the order that they appear in the letter:

Contrary to the statement in Mr. Milton’s letter, all of the directors own shares in the Company, either directly or indirectly, as disclosed in the 2021 Annual Report and one director purchased shares during that year.
Your Board and Company Secretary have at all times engaged fully with Mr. Milton. The information provided to him was not to his liking.
On 5th August 2021 Mr. Milton completed a proper purpose form requesting a copy of the Company’s share register. He was provided with a copy of the register on 12th August, within the deadline stipulated in the Companies Act 2006.
On 20th May 2021, some nine weeks prior to Mr. Milton’s request for the share register, your Company served a Section 793 notice on Philip J Milton & Company plc. This is a provision of the Companies Act 2006 that compels nominee accounts to disclose who the beneficial owners of a company’s shares are. We wanted to know who Mr. Milton’s clients were (our shareholders) so that we could communicate with them. Because of his failure to comply with that s793 notice, the majority of the shares he claims to have in his control are now disenfranchised in accordance with the Company’s Articles of Association. When Mr. Milton provided the requested information in relation to shares owned by him and his company those shares were re-enfranchised. He has, however, refused to provide any information on his client’s shareholdings in the Company, and as consequence is now in breach of the Companies Act 2006. This is a matter we hope will be resolved by Mr. Milton providing the information that we have requested regarding his clients. To be clear, your Company is entitled to this information by law and failure to comply with the Act is an offence.
As regards our share price, the best way to improve that is by growing the net asset value, which we are doing. It rose 31.2% last year. Furthermore, our new focus on technology will almost certainly make the fund more appealing to many more investors and we intend to start marketing it as an alternative to established technology funds that sell on net asset value or above while having less good performance. This should attract new buyers for our shares and narrow the discount. As to the spread in our shares this, unfortunately, is not something that we can control. We, like all shareholders, resent it. We have written to the London Stock Exchange and complained in the hope that they will do something about it. We would urge all shareholders to do the same.
Mr. Milton notes the Company’s investment policy and its objective. He then goes on to copy sections of Blue Planet Investment Management Ltd’s website (www.blueplanet.eu) relating to the services they can provide to their clients. Those sections have nothing whatsoever to do with your Company. This has been made clear to Mr. Milton.
It is noted that Mr. Milton has used his letter to you as an opportunity to sell his services, boasting about his “best investment period”, without substantiating any of it. This marketing of services was not noted in the proper purpose request that Mr. Milton was required to complete prior to receipt of confidential data regarding our shareholders (i.e., the share register). It is there to ensure that confidential data is only released for what the Companies Act calls a “proper purpose” and to ensure compliance with both the Data Protection Act and the Companies Act 2006. The fact that Mr. Milton, a regulated person, chose to omit that he wanted to use the data for what would be regarded as an improper purpose under the Act, is concerning.
As far as the Board is aware Mr. Milton does not have any experience as an investment manager of listed investment trusts and most of his investment of client funds is in other investment funds and trusts, rather than directly in companies providing goods or services. He also fails to mention that in 2013 (Decision reference: DRN0445269) and again in 2021 (Decision reference: DRN3501256) the Financial Ombudsman Service found that Philip J Milton & Company had put clients into inappropriate, high risk, investments and ordered them to pay compensation to those clients for the losses they suffered as a result of the firm’s failure to adhere to their clients instructions. The Financial Ombudsman rulings can be found on their website www.financial-ombudsman.org.uk. Simply search “decisions” and type in the company name.

Additional Matters

To provide shareholders with more background on Mr. Milton’s investments in the Trust we are providing information on the communications that took place in early 2021, the subsequent actions by Mr. Milton and his company and the effects of these.

As it was entitled to, your Board changed the Trust’s asset allocation in October 2020 to concentrate more on capital growth, including more technology stocks and fewer bonds. This change was welcomed and supported by shareholders. In so doing, it inadvertently created a problem for Philip J Milton & Co because it altered the risk profile of our shares, as perceived by Mr. Milton, to a level that was incompatible with his client’s stipulated risk requirements. This change and our focus on capital growth no longer suited his clients.

On the 8th of February 2021, Mr. Milton wrote to Kenneth Murray complimenting him on the Trust’s investment performance and expressing his concerns regarding our increased focus on capital growth. In conversation he told Kenneth Murray that because of our change in focus, our shares were no longer suitable for his clients and in consequence, his firm would be selling them.

That should have been straightforward, but they were unable to do so. The position they had built up was so large and illiquid that they could not sell it. Having been unable to sell their clients’ shares and ensure compliance with client agreements and their clients’ instructions that way, Mr. Milton then embarked on a series of attempts to get out of what is a problem of his own creation by other means.

Mr. Milton wrote to Kenneth Murray again on the 5th of March 2021 expressing his view that as a result of the new asset allocation “the risk to investors in the Trust are immense” and asked the Board to consider changing the name of the Trust to the “Blue Planet Ethical Tech Trust” which he hoped would attract new buyers for the shares and allow him to exit the investment. That idea did not appeal to the Board and was rejected. Mr. Milton then asked us to revert to our previous asset allocation to give him time to find a buyer for his shares. The Board declined that as well but offered to help him find a buyer for his shares. Eventually after a series of other attempts to get out of his predicament, all of which the Board rejected, he sought to cajole then bully the Trust’s investment manager into transferring the management of the Trust to his firm, presumably so that he could change the Trust’s asset allocation policy and get out of his predicament that way. The manager notified the Board of the Trust about this.

It would appear what Mr. Milton wanted was for your Board to run your Company for his benefit and not for that of all shareholders. We are never going to accept that. Having been unable to sell their clients’ shares or get your Board to fix their problem for them, what Philip J Milton & Company did next was concerning. They bought more shares. This was despite Mr. Milton, who is also the firm’s Compliance Officer, concluding that those shares carried “immense” risks and were unsuitable for his clients.

Wealth managers typically have standard agreements with their clients. A copy of Philip J Milton & Company’s client agreement can be found at:

https://www.miltonpj.net/documents/Discretionary%20Client%20Agreement.pdf

Appendix 2. Section D2. of that agreement states that:

“The Company has discretion to act on behalf of Clients within the given investment aims. There are no restrictions whatsoever on the type of investment which may be considered in fulfilling Clients’ objectives except that the purchase of non-readily realisable investments…. is not permitted”.

The term “non-readily realisable investments” is not defined in Philip J Milton & Company’s client agreement. What it would commonly be understood to mean, and which it is likely that most of Milton’s clients will have taken it to mean is, investments that cannot readily be sold and turned into cash.

On the 18th of March 2021, we were notified that Philip J Milton & Company had acquired an additional 663,729 shares in the Trust, taking their shareholding from 17.09% to 18.43% of our share capital. Those shares were acquired on the 24th of February 2021, two weeks after they had notified us that they were unsuitable for their clients and would have to be sold and one month after the Financial Ombudsman had, for a second time, censured the firm and ordered it to pay compensation for putting its clients into unsuitable investments that carried more risk than those clients had stipulated they were prepared to tolerate.

Philip J Milton & Company have now built up a 19.1% stake in the Company using their clients’ money. That would take 323 trading days, at average trading volumes, to sell. Few would consider waiting for well over a year to achieve a sale as being readily realisable and we are concerned that their clients may now effectively be trapped in an investment they should not be in.

Another point of concern to the Board relates to Philip J Milton & Company compliance, or apparent lack of it, with Clause D3 of the agreement they have with their discretionary clients. This states that:

“Underlying beneficial ownership remains with the client who retains all rights attributable to Investments held (such as voting).”

We have therefore requested evidence that the clients have explicitly given permission to Mr. Milton to cast their votes. We have yet to receive a satisfactory response.

In summary, Mr. Milton’s motives are not to further your interests. Nothing could be further from the truth. He is attempting to use you and the Company to get himself and his firm out of a serious problem of his own making. His clients are now collectively trapped in an illiquid investment that according to Mr. Milton they should no longer be in and which he cannot easily get them out of.

In him we have a managing director and compliance officer of a regulated business who is in breach of the Companies Act and has been for months, who has twice been found by the Financial Ombudsman to have failed to adhere to his clients’ instructions and who shows an apparent disregard for the agreements he has entered into with his clients. His implication that he somehow is “in liaison with the regulatory authorities” is wrong and an improper suggestion.

Your Board is committed to creating value for you, our shareholders. We have a clear, carefully thought-out strategy that last year delivered a NAV total return of 31.6%. Our highest ever. We have a portfolio of carefully researched, exciting, rapidly growing companies in new and evolving markets. We are invested in the technologies of the future and are confident that our portfolio will produce exceptional returns for our shareholders over the coming years. In addition, we have since our merger in 2012 paid our shareholders dividends totalling 24.13p, the equivalent of 134% of our share price at the time of the merger.

We hope you will continue to support your Board and ignore Mr. Milton’s letter. Our future is very bright together. We wish you well and thank you for your support.

Your sincerely,

The Board of Blue Planet Investment Trust plc”