The board of Chrysalis (CHRY) has given an update on the trust’s investment management agreements, intending to maximise shareholder value. Following a consultation by Rothschild & Co Equity Markets Solutions the board has recommended several new adjustments to CHRY’s investment management agreements. However the board is of the belief that the current managers, Richard Watts and Nick Williamson, should remain in place given their deep knowledge of CHRY’s invested companies. Instead the board foresees that it will operate under a new management company, one which will no longer be part of Jupiter Asset Management. The board is more optimistic about the outlook for CHRY, highlighting the softening of yields and company specific news, e.g. the discussion around Klarna’s move towards IPO, also providing a more upbeat prognosis.
The proposed new arrangements are as follows:
1) Chrysalis and Jupiter have agreed that the six months’ notice period under the existing management contract will be waived and the contract will terminate with effect from 1 April 2024.
2) Jupiter has agreed to a reduction in the management fee, effective from 1 October 2023, from 50bps to 15bps (given likely limited investment activity in the current market environment pending the continuation vote), leading to an expected saving of approximately of £1.4m over the six-month period to 31 March 2024.
3) Jupiter has released the Managers from their employment contracts and employment restrictions, effective 31 March 2024.
4) The Board has agreed, in principle, to enter into a tripartite contract with a new investment adviser formed by the managers (that will also have as members and/or employ the existing executives who are focussed on the CHRY portfolio either immediately or following the end of their notice periods with Jupiter) to take over investment advisory services from Jupiter, and with G10 Capital Limited – to take over AIFM services for the CHRY, each with effect from 1 April 2024. As a result Richard and Nick will be solely focussed on the CHRY’s portfolio.
5) CHRY’s investment advisory fee will be comprised of (i) 50bps of net asset value per annum, which is commensurate to the level the Company has historically paid; and (ii) an additional AIFM fee of 5bps up the first £1 billion of net asset value per annum (3bps thereafter). The latter will fund both the significantly enhanced risk process that is anticipated to be established in cooperation with the Managers and the oversight of G10 Capital Limited.
6) The new investment advisor to be led by the Managers will have a 12-month minimum initial term, following which the new agreement will be terminable on 6 months’ notice.
The performance fee arrangements (5) in the above list) for the new investment adviser will be subject to shareholder approval at a meeting to be held immediately following the AGM, expected to be held in Q1 2024. The proposed performance fee terms will be the same as those described in the company’s announcement on 13 October 2023. Shareholders will also be able to vote on the continuation of CHRY at the upcoming AGM, with the board recommending to vote in favour of continuation.
QD comment: [Rather than a seismic shakeup of the trust, the board has opted for a route that seems to preserve the essence of CHRY while cutting away much of the fat. CHRY’s managers’ day-to-day activities will be more focused on producing better results for CHRY’s shareholders. CHRY’s approach should benefit as dampening inflation allows for lower interest rates. Irrespective of those potential gains, the savings from the revised Jupiter fee structure is good news for shareholders.]