The Fund Monitor

Literacy Capital has raised its management fee while reducing its charitable donations to balance shareholder costs. Tritax EuroBox has switched its recommendation from Segro’s all-share offer to a 69p per share cash bid from Brookfield. Meanwhile, Witan shareholders have approved a merger with Alliance, creating one of the largest London-listed investment companies by market cap.

By Frank Buhagiar

Literacy Capital ups its fees

Literacy Capital (BOOK) has gone against the grain and announced an increase in its management fee from 0.9% of NAV to 1.5% of NAV.“As Literacy’s portfolio has grown considerably in recent years, now numbering 19 different businesses, the Investment Manager is keen to ensure that it has the resources necessary to build the scale and capabilities within its team.” The Manager believes that, because BOOK focuses on investing in small businesses, its portfolio companies typically require a higher level of support than other areas of the private equity market. Hence the need to charge higher fees.

To cushion the blow, the private equity fund is cutting the amount it donates to literacy charities. As per the fund’s investment policy, BOOK has made charitable donations equal to 0.9% of net assets every year since 2018. But as the fund’s value has grown, so too has the size of the donations made from £532,000 in 2018 to £2.79 million in 2023. “The Board has concluded that reducing the Company’s charitable donation from 0.9% to 0.5% of net assets per annum enables the Company to retain its unique feature of making a significant difference to children from disadvantaged backgrounds, through continuing to make substantial seven-figure donations on an annual basis, whilst allowing for the Increased Management Fee to be paid without materially increasing the total cost of the combined elements for shareholders.”

Numis: “It is somewhat unusual to see an increase in management fees, which is bucking the trend across much of the sector. However, we note that Literacy Capital is already unusual for a private equity IC, given it has only a base fee, with no performance fees.”

Tritax EuroBox recommends second bid

Tritax EuroBox (EBOX) announced it is ditching its previous recommendation that shareholders ought to accept an all-share offer from Segro (SGRO). That’s because the Board is now recommending a 69p per share cash offer received from Brookfield. Easy to see why. Not only is Brookfield offering cash, but it has been pitched at a small premium to SGRO’s offer. Including dividends, this originally stood at 68.4 pence per EBOX share. But due to market movements, the SGRO bid has since fallen to 65.1p. Ball back in SGRO’s court it would seem.

Or not. For SGRO quickly put out a statement reiterating the benefits of its all-share offer. “This would enable Tritax EuroBox shareholders to retain exposure to the European industrial and logistics sector at this point in the cycle, in the largest and most liquid REIT in Europe, or realise their position for cash given the significant liquidity in SEGRO’s shares. A further announcement will be made if appropriate.” Not sure whose court the ball is in now.

Winterflood: “we view this latest proposal as an improved deal for shareholders, as it provides certainty of transaction price and removes exposure to market movements that would change the implied value of the all-share merger under the SEGRO offer.”

Numis: “there is of course the potential for the Segro share price to rally over the coming weeks increasing the theoretical value of its offer, but ultimately ‘cash is king’ and we expect that the certainty of the Brookfield offer will have strong appeal for many shareholders.”

Alliance Witan merger gets the green light

A case of goodbye Witan, hello Alliance Witan (ALW) after shareholders in the former gave the okay to combine with Alliance on 9 October 2024. No hanging around either. By the next day, Alliance’s name and ticker had been changed to Alliance Witan and ALW respectively, while the newly named fund also took on approximately £1,539 million of net assets from Witan in exchange for 120,949,382 newly issued ALW shares.

JPMorgan: “ALW is now one of the largest London listed investment companies in market cap terms, ranking fifth behind 3i Group (£31.6bn market cap), Scottish Mortgage (£10.9bn), Pershing Square Holdings (£6.4bn) and F&C Investment Trust (£5.1bn).”