by Val Cipriani, Investors’ Chronicle, February 13, 2025:
More investment trusts battling with discounts have changed their fee structure in favour of investors.
Last week, Gresham House Energy Storage (GRID), trading at a 62.2 per cent discount to net asset value (NAV) as of 7 February, said it would start calculating its management fees half based on market cap and half based on NAV. Fees were previously based on NAV only and the change could save the trust, and therefore its investors, about £1.6mn over the next year.
Supermarket Income Reit (SUPR), Greencoat UK Wind (UKW) and Ecofin US Renewables Infrastructure (RNEW) have made similar changes in the past three months, with the first basing fees on market cap and the other two on the lower of NAV and market cap.
NAV-based fees are common, including for trusts investing in unlisted assets, whose NAV is based on estimated valuations rather than on live market prices. But with those trusts languishing at significant discounts, NAV-based fees are higher than market-cap-based structures. Analysts have argued that NAV-based fees mean that manager incentives do not reflect the experience of shareholders.
Matthew Read, senior analyst at QuotedData, argued that the “gold standard” should be basing fees on the lower between NAV and market cap. While managing the discount is the board’s, and not the manager’s, job, he said, the structure “aligns the manager more closely with shareholders” and provides an “incentive to minimise the discount and not to allow premiums to become excessive”.
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