Baillie Gifford Shin Nippon (BGS) will provide shareholders with a 100% exit opportunity in five years’ time under a revision to the tender offer plan announced last year.
The board of the poorly-performing Japanese smaller company growth fund said the original plan for a 15% tender offer did not give its new fund managers sufficient time to improve performance. This stated if returns failed to beat the MSCI Japan Small Cap index in the three years to 31 January 2027, the trust would offer to buy back up to 15% of its shares at a price close to net asset value (NAV).
With just 14 months to go in the review period, the trust – which lead manager Brian Lum took over in May with deputy Jared Anderson joining him in the summer – lags the benchmark by 29%.
Having consulted with major shareholders, the £320m investment trust will now undertake a 15% tender at a 2% discount in the first quarter of next year, cancel the tender offer for 2027, postpone a continuation vote in 2028 and introduce a performance triggered tender offer for up to 100% of its shares for early 2031.
The 100% exit, which could see the now 40-year-old company wind up, will only go ahead if the underlying total return from the portfolio, or NAV, fails to beat the MSCI index over the five years from 31 December to 31 December 2030.
Chair Jamie Skinner said: “While shareholders share the board’s frustration with the continued poor performance, many recognise the unique opportunity offered by the company, being the only investment trust offering dedicated growth exposure to small cap companies in Japan, and are supportive of the mandate continuing to be pursued. They also believe the portfolio managers should be given an appropriate amount of time to demonstrate the efficacy of the changes they have made to the portfolio.”
In the past five years, Shin Nippon shares have almost halved as its growth style has fallen out of fashion and some of its stock picks have not worked. By contrast, rivals AVI Japan Opportunity (AJOT) and Nippon Active Value (NAVF) have enjoyed huge success with their activist approach to the country’s cash-laden smaller companies, generating total returns of 64% and 111% respectively.
Our view
James Carthew, head of investment company research at QuotedData, said: “There are a few elements to the Shin Nippon proposals but my guess is that shareholders will feel that a 15% exit now is too small, 2028 is too long to wait for a continuation vote, and 2030 is too long to wait for an exit opportunity if the current poor performance persists. However, I have a lot of sympathy for the argument that (much as we love AJOT and NAVF) there is still a role for a small cap Japanese trust which is not focussed mainly on corporate governance opportunities.”
