Robert Naylor, activist chair of Aquila European Renewables (AERS) looks to be preparing to dismiss Aquila Capital for possible breach of contract after suggesting the fund manager may have “withheld information material to the company’s valuation”.
In an update to the row that broke out in May when Aquila Capital pulled out of a proposed purchase of half the portfolio, Naylor said the German investment adviser had refused to forbear £160,000 of fees to recompense AERI for its legal costs in the aborted transaction.
Naylor, who also manages investment companies activist Achilles (AIC), revealed Aquila had justified its decision to cut its offer for the assets due to “overall market conditions and certain asset-specific findings, particularly in Spain and Portugal”.
According to AERS’ statement, Aquila Capital said its transaction team “ultimately took the view that the price level must appropriately reflect prevailing market conditions and the identified findings.”
In response AERS said: “The board considers this statement to be of the utmost gravity. Aquila Capital has managed these assets for years; every asset in the portfolio was acquired from funds, finance vehicles or accounts managed or advised by Aquila Capital. It has prepared and endorsed the valuations on which it charges fees. The suggestion that Aquila Capital had no knowledge of material findings concerning those same assets, findings serious enough to drive a revised offer at a material discount to the published NAV [net asset value], is a position the board cannot accept.”
It said the Commerzbank subsidiary could not use a “Chinese wall” defence as Markus Wandt, a signatory to a letter to the board, sat across both the asset management and transaction teams as managing director of the firm.
The board reiterated its demand for full disclosure from Aquila Capital of the valuation of the portfolio which has been in the process of a managed wind-down since September 2024. Having first requested the information on 1 June, it said it wanted answers in five days. Shares in AERI languish on a 63% discount to net asset value that has plunged by nearly two thirds in the past three years, valuing the company at £62m.
“Should Aquila Capital decline to provide these confirmations, or qualify them in any material respect, the board will draw the necessary inference that Aquila Capital withheld information material to the company’s valuation, in breach of its duties as investment adviser,” it warned.
It said it would cut its management fee in line with the reduced valuation implied by Aquila Capital’s revised offer, arguing the firm could not “credibly” collect fees by reference to a net asset value it contends to be materially overstated.
Naylor, who took charge of the board in December, said: “Aquila Capital’s own letter has raised questions it cannot now avoid answering. By admitting that its transaction team identified material asset-specific findings in Spain and Portugal, Aquila Capital has, in effect, called into question the integrity of the very valuations on which it has been collecting fees. When did they know this? Why was it not disclosed to the board, to the auditors, or to shareholders? These are not peripheral questions. They go to the heart of whether Aquila Capital has discharged its duties as investment adviser.”
Our view
Richard Williams, senior analyst at QuotedData, said: “This latest development in the AERS saga is extraordinary. The allegation that Aquila Capital had been withholding negative pricing information about these assets while collecting management fees at the higher valuation is of the utmost seriousness and if proven should ring alarm bells at the FCA. We applaud the actions of the board, but judging by Aquila Capital’s response so far, cannot see a satisfactory solution to this mess anytime soon.”
Stay a step ahead. Our daily newsletter brings you the latest on investment trusts and active ETFs. Subscribe here.
