The Rockwood Board recommends wind-up reversal as the manager speaks

The call for votes follows an announcement last month that Gresham House, a former manager of the trust, then known as Gresham House Strategic, sold 23.7% of its shares to current investment manager Harvard.

The firm and Stavley together hold 29.9% of the share capital issued by the trust. They have spoken to many shareholders who support the opposite of wind down.

Talk about zooming in Investment Week On Wednesday (April 6) Stavley was smiling broadly, relieved after several months of turmoil in which he resigned, joined a new firm and then had to end the faith.

“We are very excited about the portfolio,” he said. “We know that the wind-up process was not in the best interests of shareholders.”

There will be other significant changes for shareholders as part of the reversal. Including reductions in both management fees and performance fees.

The management fee of Gresham House was 1.5% annual fee and 15% performance fee on 7% barrier. Harvard agreed to pay a management fee for the wind-down but would not receive a fixed fee of £ 120,000 per year when the trust was below £ 60m. Harvard will then charge 1% per annum, including a 10% performance fee on top of the 6% barrier. Performance fees will be limited to 3% of the NAV if the trust is below £ 100m, the excess will be “postponed” for the next performance period.

Stavley said the reduction in fees could go a long way in helping to solve some of the problems associated with what are known as “subscale funds”.

“Harvard is materially reducing the cost of running the company, as well as significantly reducing fees. We think the overall cost burden is going to be much, much tastier for shareholders,” the manager said.

He added there was an ambition to increase confidence, but they would not want it to be larger than £ 250m, which he acknowledged was far from the size it is today.

Defense and volatility define the top investment in March

The investment philosophy will also change, allowing the fund to hold up to 15% of its portfolio in the private sector. However, the manager highlights that unlike many other trusts, those who are hunting in the private market are, on the contrary, looking at private transactions from the public.

“We think we can spot small forgotten things about companies hiding off the radar,” he explained. “Private equity can come, we can even work with them and basically flip it into a private position.”

Other proposed changes include investing in ten ‘core’ investments for the trust that represent 4-15%, with the rest of the portfolio investing in 15-25 focused investments. Staveley will also be able to invest in non-UK OECD investments, but it will not exceed 25%.

Reversing wind-up

Stevely had the experience of finding success stories for the company. The trust’s current makeup is a remnant of Stevely’s 19-month investment.

The manager resigned at the end of May 2021, a situation he will not discuss. Following his resignation, the board issued a statement saying they were “disappointed” and noted that he had made a “significant positive impact” with two-thirds of the portfolio he had acquired during his tenure, and that his seven purchases had already exceeded 50%.

In fact, although the trust closed down and was unable to buy new companies, it was still the best-performing trust, with a total return of 41.5% in the first quarter of this year, according to Morningstar data.

The trust has nine agencies, all of which were part of Stavley’s resignation.

“There’s nothing weird about the portfolio,” he said. That’s the decent thing to do, and it should end there. “

He noted that due to the wind-down, they have sold some companies, including RPS Group, where they made 149% IRR and National World where they made 170% IRR.

However, he was not entirely satisfied with all the sales forced by Wind-Down, especially Ted Baker, which is now available for sale.

Conflict of interest

Asked how he felt about the investment trust structure in light of the events of the past few months, Stavley said he felt it was the “new” of the situation.

“If a fund manager, like Gresham House, has a significant stake in the investment trust as a shareholder, but also has a management agreement, then there is an inherent conflict of interest,” he said.

“If there is a situation where the management agreement is reviewed that the dispute is really brought to the fore and it is the responsibility of the people to manage those conflicts effectively.”

He noted that Harvard had signed a relationship agreement with Rockwood, which meant they would limit their voting rights above 10%.

“The idea behind this is that we want shareholders to know that we are not going to interfere in how the board oversees the company,” the manager explained.

However, he added that as an investor in small companies, he sees investment trusts as a “very positive vehicle” that works effectively for patient capital.

Concluding on the experience, he said it felt a little better Back to the future.

“If you remember, when Marty McFly came back at the end of the film, life was a little better than what he left behind.”

Shareholders will vote on the proposal at a general meeting on April 25. If they vote against the company, the approved collection strategy will continue in December 2021.

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