Gresham House has committed to spending £5mn on shares in Strategic Equity Capital, one of the trusts it manages, as part of a plan to avoid a takeover.
By June 2023 the alternative asset management company intends to have bought £5mn worth of Strategic shares at a “greater than 5 per cent discount”.
The commitment is one in a series of proposals put forward by the trust's board in a bid for it to remain a “successful standalone vehicle”, after being approached by the Odyssean Investment Trust about a takeover in December.
In its announcement, Strategic Equity Capital said: “The board today wishes to announce a series of proposals which it believes will enhance shareholder value creation and allow the continuation of Strategic Equity Capital as a successful standalone vehicle."
It added that these proposals would allow investors continued access to the investment team of Gresham House Asset Management and the trust’s differentiated investment proposition.
“Accordingly, the company will not be proceeding with further discussions with the board of Odyssean Investment Trust on the proposed combination.”
Odyssean is run by Stuart Widdowson, who used to manage Strategic before he quit to set up the new trust.
Strategic later hired Gresham House to replace Widdowson, with Gresham’s Ken Wotton as lead manager.
Last year two of the trust's shareholders called for the Strategic Equity Capital trust to be shut down over its poor performance and its large discount but a general meeting later voted to keep the trust going.
Since then the trust's discount has narrowed slightly - falling from 15 per cent to 11 per cent.
The trust has also been regularly outperforming its sector, the AIC UK Smaller Companies. Over three years it has returned 64 per cent while its sector returned 51 per cent.
In order to avoid a merger with Odyssean, Strategic has proposed the implementation of a tender offer of up to 10 per cent of its share capital.
This would replace the previously announced tender offer, due to be completed in November 2022 and which would have carried a 3 per cent discount to net asset value.
“The discount at which the shares have traded has been a source of frustration to the board and it has taken significant steps to address this, with an increased focus on marketing of the company,” the trust said in its announcement.
“While these measures are still at an early stage, the board believes they will be significantly enhanced by adoption of the proposals.”
Other proposals include the implementation of a share buyback programme in 2022, and an ongoing buyback policy commencing in the financial year ending June 30, 2023.
Gresham House has also made an ongoing commitment to reinvest 50 per cent of its management fee per quarter into shares, if Strategic’s shares trade at an average discount of greater than 5 per cent for the quarter.
Strategic is focused on investments which have a market capitalisation in the region of £100mn to £300mn at the point of entry.