Manchester & London (MNL) fund manager Mark Sheppard has responded positively to a suggestion from QuotedData’s James Carthew that taking over another investment trust might be the solution for its problematic small free float.
Sheppard and his company M&L Capital Management own 62% of the £331m closed-end fund which he has wholly committed to investments in artificial intelligence companies.
Annual results last month showed that while the trust’s performance continues to be strong, the board had to suspend share buybacks and purchases by anyone involved in the company. This was to avoid Manchester & London seeing the amount of shares held by independent investors fall below 35%, the minimum required under UK tax and listing rules.
Breaching that could incur a highly “detrimental” tax bill for the company and shareholders if it lost its investment trust status, the board warned, adding it was looking at “structural options”.
Commenting on the situation at the time, Carthew said: “One solution might be to find a way to make the trust a lot larger – through M&A [merger and acquisition] perhaps, which could boost the free float.”
In a post on X responding to our article this week, M&L Capital Management said: “With many funds under attack, a friendly merger may well be a very palatable solution for some.”
“Mark is always open to ideas,” it added.
Sheppard’s apparent willingness to undertake corporate action could be of interest to the boards of investment trusts targeted by activist hedge fund Saba Capital, perhaps even the £1.7bn Smithson (SSON) where it holds 15%. Combining with a big, strongly performing trust would solve any existential crisis for some trusts and could be attractive to their shareholders while offering a potential uplift to Saba on an exit.
However, boards would have to be comfortable with Sheppard’s high-risk investment style. While MNL’s long-term performance has been impressive, topping the Global sector with a 10-year 394% total return, the level of stock concentration is extremely high with Microsoft and Nvidia representing 65% of the portfolio and the top five holdings accounting for 83% of net assets.
Also, the shares stand on a 24% discount to net asset value, which would complicate an all-share merger with a trust trading on a narrower discount.
