Poorly performing Octopus Titan VCT (OTV2) has cut its fund manager fee by 17% and slashed the notice it needs to give to terminate Octopus Investments’ contract from three years to 12 months.
A further 20% fee rebate could be clawed back if the fund manager does not deliver a 5% annual target return after costs or achieve disposals of 6% of the technology portfolio in the first year, rising to 10% in year two.
These are the main decisions of a year-long strategic review prompted by the poor performance of the £470m venture capital trust whose shares have halved in the past five years.
They require shareholder approval at a general meeting on 14 October, for which a circular containing further details, has been published.
Chair Tom Leader said the board had considered replacing the fund manager but had decided Octopus was currently best placed to extract the best shareholders returns from the current portfolio while barred from making investments in new companies.
During a transition period the fund manager, which was paid £2.1m by the VCT last year, will be assessed on underlying investment returns, cash realisations, share buybacks and dividend cover.
The new tiered annual management fee will see Octopus Investments earn 2% of NAV up to £500m, falling to 1.75% between £500m and £750m and 1.4% above £750m. Its ability to earn an additional fee will be suspended until 2034.
Leader said the changes offered the best likelihood of improving shareholder returns in the most cost-effective way while laying the foundations for future growth and fund raisings.
“The changes proposed will significantly reduce investment management fees and provide better alignment of the interests of shareholders and the portfolio manager. They will also give the company increased flexibility to review its investment strategy and, if necessary, the ongoing appointment of the portfolio manager, if performance does not improve. On behalf of the board, we recommend that shareholders support the changes made and vote in favour of the resolution,” said Leader.
James Carthew, head of investment company research at QuotedData, said: “The Octopus Titan plan – more follow on investments, lower fees – makes sense but I was puzzled by the board moaning about holding periods of 6.5–7.5 years for a portfolio of early-stage investments. I am not convinced that it is altogether sensible to encourage a short-term mentality when backing early-stage businesses.”
