Harwood Capital Management has entered into a dispute with the board of the Strategic Equity Capital trust over whether it should take over the trusts assets.
Earlier this month, Harwood revealed its plan to set up a new investment business with former portfolio manager of the Strategic Equity trust, Stuart Widdowson.
According to a market update, Harwood has been speaking to Strategic Equity trust’s shareholders to promote a separate scheme so it could manage some or all of the trust’s assets.
Harwood Capital Management said splitting the £140m trust into two separate entities would give investors the choice between fund managers.
Mr Widdowson made his name running the GVQ-owned trust, which has returned 146 per cent over the past five years, racing ahead of the UK smaller companies sector.
However, the Strategic Equity trust’s board, which is chaired by Richard Hills, claimed that Mr Widdowson would be in breach of the terms of his employment contract with GVQ Investment Management by overseeing some or all of the assets.
According to the board, Mr Widdowson would not be allowed to put himself forward to manage Strategic Equity trust’s assets for up to 18 months since he quit the firm.
Yet Harwood contested this, stating: “Having taken legal advice, Harwood understands that the suggestion that Mr Widdowson can't manage any of SEC's assets for 18 months is an extreme simplification of the situation.”
Harwood has offered to pay up to £1m in expenses to support the split, which the firm said was a “gesture of good faith” and means Strategic Equity trust shareholders would not be financially disadvantaged.
Yet according to Harwood, the trust chair Richard Hills has refused invitations to discuss a way forward for SEC in order to let shareholders decide which fund manager they want to run their money.
In a statement, Harwood said it was surprised that the board is not willing to engage in “good faith discussions” to consider alternative options that could be in the interest of all shareholders.
Christopher Mills, managing partner at Harwood, told FTAdviser this was not about which fund manager was better, but was simply about letting shareholders decide who they would like to look after their money.
He said he expected Mr Widdowson to join Harwood by August this year at the latest.
Mr Mills will take over management of the new entity in the meantime.
According to FE, the trust has significantly underperformed the peer group average over the past year, returning just 3 per cent against the 25 per cent sector return. It is also currently trading at a 15 per cent discount.
Speaking to FTAdviser, Richard Hills said it was difficult to deal with something which is very short on detail.
“Until the board has something concrete we can really work with then there is nothing we can do. We want to understand exactly what [Mr Mills] is proposing so we can assess the merits in the light of shareholder feedback."
