Menhaden Resource Efficiency (MHN) is proposing a managed wind-down and return of capital to shareholders. Following an announcement on 16 September 2024 that it was reviewing its future options, MHN says that its board has concluded that it is in the best interests of shareholders as a whole to propose an orderly realisation of the company and return the realised capital to shareholders. This decision has been taken in consultation with the portfolio manager and the AIFM (Frostrow Capital) and reflects feedback from a range of shareholders. The company intends to publish a circular in early 2025 in order to put the necessary resolutions to shareholders.
Rationale for managed wind-down
MHN says that, while its board believes that the resource efficiency investment thesis remains compelling, headwinds continue to weigh more widely on appetite for investment trust shares, particularly those with smaller scale and lower liquidity, resulting in wide discounts and the inability to issue new shares and grow trusts. Although the NAV has grown by 7.1% per annum since inception, and by 9.7% per annum over the period since the appointment of Luciano Suana as chief investment officer in March 2016, the share price growth has continually lagged NAV growth (reaching a discount of 38.9% on the day prior to the 16 September announcement), resulting in MHN not achieving sufficient scale (market cap £94.2mn as at 30 November) and the shares suffering poor liquidity.
MHN says that its board has obtained and considered shareholder feedback and undertaken a comprehensive analysis of a wide range of possible future options, including multiple proposals from third parties which included alternative investment management arrangements, potential mergers with other investment trusts, and discounted cash offers for the unquoted portfolio. However, the shareholder feedback received by the board heavily supported a realisation of the portfolio and return of capital to shareholders. A circular, expected to be published early in 2025, will include detail on the proposal, including measures intended to effect the realisation on a cost- and tax-efficient basis. Shareholders do not need to take any action at this time.
Comments from Howard Pearce, chair of Menhaden Resource Efficiency
“With its portfolio of investments in both listed companies and unquoted co-investments, Menhaden Resource Efficiency has delivered good NAV returns. The board recognises and appreciates the efforts of the Menhaden Capital Management team in delivering this performance.
“However, the conditions for UK investment companies have changed significantly over the past decade. Having considered a range of future options, proposals and shareholder feedback, the board now believes it is in all shareholders’ best interests to propose an orderly realisation and return of capital. Given the nature of the portfolio, the board believes this can be achieved in a relatively short time frame once the necessary shareholder approvals have been obtained.”
Comments from Ben Goldsmith, CEO of the portfolio manager
“We are proud of the portfolio’s NAV performance since launch. When I conceived Menhaden Resource Efficiency together with our chairman Graham Thomas, our thesis was that companies with the most efficient energy and resource use would outpace competitors, particularly as supply-demand dynamics continued to constrain net supply.
“Since then, drivers including the global race to net zero, pandemic constraints, plus the Ukraine and other wars, have highlighted the importance of energy security and critical resources for many companies. Businesses who have navigated such constraints and are adapting to the energy transition have typically outperformed. Our investment thesis remains intact, and the opportunities to allocate capital to resource-efficient businesses remain.
“However, considering the wider ongoing challenges for investment companies, we think the time is now right to deliver back to shareholders the return on capital they have accrued, as well as their original capital. As investment in global resource efficiency has become more mainstream, attention now needs to turn to rebuilding natural ecosystems.”
[QD comment: It’s not a big surprise to see Menhaden throwing in the towel. This trust had a difficult beginning and seems to have moved from one problem to the next. At times it has also had some investments that looked hard to justify in the context of what it was aiming to achieve. Because of these issues, it has failed to capture investors’ imagination and has largely languished on the sidelines. It is hard to see where it could go from here and the board was right to look at the trust’s options. This highlights the benefits for the closed-end fund structure, one being a board that is tasked with looking after shareholders’ best interests. An equivalent open-ended fund may have limped on for a good while longer.]
