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Gresham House served notice on UK smaller companies trust

Gresham House Asset Management faces being booted off its UK smaller companies trust which has struggled to grow assets despite outperforming peers. 
The asset manager was served protective notice of 12 months on Gresham House Strategic (GHS) foll…

Gresham House Asset Management faces being booted off its UK smaller companies trust which has struggled to grow assets despite outperforming peers. 

The asset manager was served protective notice of 12 months on Gresham House Strategic (GHS) following the board's decision to undertake a strategic review.  "The board of GHS does not wish to pre-empt the results of the strategic review, as it is certainly possible that the existing asset management arrangements will be retained," it said in an RNS filing on Monday morning. "Nonetheless, the board believes it is prudent to serve protective notice on GHAM."   

GHS is the second trust run by Gresham House to face uncertainty this year. In March rebel shareholders were calling for Ken Wotton's Strategic Equity Capital trust to be wound up due to concerns over the trust's widening discount. However they were overwhelmingly shot down at an EGM.

See also: Ken Wotton's trust granted a reprieve as shareholders reject wind-up proposal

GHS struggling to grow assets due to stubborn discount

Though the board noted GHS has been one of the top performers in the IT UK Smaller Companies sector and has seen its share price double since Gresham House took up the reins in 2015, it said the trust's persistent discount has made it difficult to raise additional equity.

  6m   1y  3y  5y 
Gresham House Strategic  29.9  51.1  80.2  112.0 
IT UK Smaller Companies  31.0  68.0  30.8  85.2 
NAV  26.5  47.7  42.2  79.5 
Source: Trustnet

Gresham House Strategic has GBP57.4m in total assets, according to data from the Association of Investment Companies. It currently trades on a 6.4% discount, slightly better than the UK Smaller Companies average of 7.1%.  "The future growth of GHS is therefore limited due to the lack of availability of new funds for investment at a time when both several attractive investment opportunities exist, and GHS would be a benefit from taking larger stakes in some of its existing investments," the board wrote. 

The review will be conducted in conjunction with an independent financial adviser, which the board expects to appoint shortly, and is expected to be completed by the trust's AGM in September.

Gresham House proposes board shakeup

Separately, the board said it had received a request from Rock Nominees on behalf of Gresham House plc to convene an emergency general meeting of shareholders to vote on six ordinary resolutions.   Gresham House, which is a major shareholder in GHS, is proposing several changes to the board, including installing Jeston Na Nakhorn, one of its own representatives, as a non-independent, non-executive director and Ken Lever as an independent non-executive director. It has also called for the trust's chairman David Potter to be ousted and replaced by non-executive director Helen Sinclair effective immediately.

A Gresham House spokesperson said the asset manager had engaged with the GHS board over a long period and expressed governance concerns over Potter's 18-year tenure as chairman. "This tenure is out of step with both the AIC Corporate Governance Code and Gresham House's position on good governance as an investor committed to ESG principles," the firm said. "As a result, Gresham House has asked David Potter to resign." The GHS board confirmed on Monday Potter would step down from his post at the trust's AGM and said it is currently hunting for his replacement.

The board described Potter as "the principle driving force" behind establishing GHS which was borne from the wind-up of Spark Ventures VC portfolio in 2015. "The board of GHS will miss David's involvement and wishes him well."  

By way of a special resolution Gresham House is also seeking approval to change the pre-emption rights granted to directors to prevent shares being allotted at less than the NAV per share until the 2022 AGM. 

The board is currently considering the requisition notice and intends to respond in due course.  

By , 24 May 21