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Strategic Equity Cap (SEC)

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Friday 27 March, 2020

Strategic Equity Cap

Change of Investment Manager

This announcement contains inside information for the purposes of Article 7 of the Market Abuse Regulation (EU) No 596/2014. This announcement has been authorised for release by the Company’s Board of Directors.

Strategic Equity Capital plc

Change of Investment Manager

27 March 2020

The Board of Strategic Equity Capital plc (the "Company") is pleased to announce that after an extensive review of the Company's management arrangements, it has entered into heads of terms to appoint Gresham House Asset Management Limited (“GHAM”) as the Company's new investment manager and alternative investment fund manager (“AIFM”) with the intention thereafter for Aberdeen Standard Gresham House Investment Management Limited ("Aberdeen Standard Gresham House"), the proposed joint venture between Gresham House plc (“Gresham House”) and Aberdeen Standard Investments (acting through Aberdeen Asset Management PLC) (“ASI”), to assume these roles once in receipt of regulatory approval and satisfaction of other conditions. 

Richard Hills, Chairman, commented:

“Following a detailed review, initiated at the end of last year, the Board is pleased to announce that it has signed heads of terms to appoint a new investment manager.  Notwithstanding that we are in the midst of extreme market turbulence, we believe that the change is beneficial for shareholders.  Indeed, we believe that Aberdeen Standard Gresham House has the experience, the platform and the associated investment management infrastructure to enhance the delivery and marketability of the Company’s investment strategy in these challenging times.  The Board is furthermore delighted that Jeff Harris and Adam Khanbhai, the Company’s incumbent portfolio managers, have accepted an offer to join the new manager and the Company will therefore continue to benefit from their detailed knowledge of the portfolio companies.  On behalf of the Board, we thank GVQ IM for the service provided to the Company over many years.”

Anthony (Tony) Dalwood, Chair of the Gresham House Strategic Public Equity Investment Committee and CEO of Gresham House plc, commented:

“We are delighted to be appointed investment manager of Strategic Equity Capital plc working together with Aberdeen Standard Investments.  We have complementary skills in our strategic public equity approach to smaller companies investment and believe that our shared expertise will create long-term shareholder value for Strategic Equity Capital.  We look forward to working with the Board to manage the portfolio and strengthen the investment process to ensure its long-term success.”

Peter McKellar, Global Head of Private Markets at Aberdeen Standard Investments, commented:

“We are delighted that the Board of Strategic Equity Capital will be appointing Aberdeen Standard Gresham House as its new investment manager.  We selected Gresham House as our joint venture partner in recognition of their deep and specialist expertise in this strategy and ability to identify compelling opportunities and generate attractive returns.”

Background to the change of investment manager

The Board has been mindful of the challenges that active asset managers, and boutique UK asset managers in particular, have faced in recent years and the resource required to implement effectively the Company’s particular investment strategy.  Furthermore, the Board recognises the importance of a strong sales and marketing capability to attract new investors.  Since mid-2016, the Company has traded on a persistent double-digit discount; notably, too, the average 12 month discount to the end of January 2020, prior to the recent market volatility, was 15.5%, against an average for the UK Smaller Companies Investment Companies sector of 7.0%.  At the close of business on 25 March 2020, the latest available trading day in respect of which a NAV has been published, the discount was 24.3%.  This has been despite performance that has beaten the Company’s benchmark.  Over the three years ending 31 January 2020, the NAV total return was 29.5%, against 16.0% for the FTSE Small Cap (ex Investment Companies) Index.

The Board took the decision in late Q4 2019 to serve protective notice to its investment manager, GVQ IM.  Subsequent to this, the Board undertook a review of its management arrangements with the help of Investec Bank plc and considered alternative management proposals from a select number of managers.

The Board has concluded that it would be to the benefit of the Company to appoint Gresham House with Aberdeen Standard Investments in its proposed joint venture as its investment manager and AIFM.  Whilst ASI and Gresham House complete that joint venture pursuant to its terms, GHAM will act as investment manager and AIFM of the Company.

Benefits of the appointment of the new investment manager

In the Board’s opinion, the appointment of Aberdeen Standard Gresham House, and GHAM, has the following key benefits:

  • Gresham House has a strong and well-developed platform (£3 billion AUM as at 26 March 2020) with a strong net cash balance sheet and well-developed operational resources. It has an established pedigree of investing on a strategic public equity (‘SPE’) basis in UK equity markets, which has been recognised by Aberdeen Standard Investments and resulted in the joint venture between ASI and Gresham House being created in respect of SPE in March 2019.

  • This team-based capability is led by Tony Dalwood (Head of Gresham House’s Strategic Equity Team and Gresham House plc CEO), based on his 20 years of investment experience in the strategy, including the period of time during which he led SVG Investment Managers Limited, the original investment manager of the Company when it was launched in 2005.Since 2015, this strategy has been deployed by Gresham House.

  • The incumbent management team of Jeff Harris and Adam Khanbhai have accepted an offer to join Gresham House and will continue to be lead portfolio managers of the Company on completion of their transfer.

  • The Company will benefit from an Investment Committee with broad experience across the industry that includes Tony Dalwood, Richard Staveley (Managing Director of SPE at Gresham House), Ken Wotton (Managing Director of Public Equities Gresham House) and, on completion of the joint venture, Peter McKellar (ASI’s Global Head of Private Markets), together with three external members (Tom Teichman, Bruce Carnegie-Brown and Graham Bird).

  • The Company will benefit from the strong investment company sales and marketing capabilities of ASI, which will be leveraged through the joint venture. ASI manages 24 investment companies, with aggregate total assets of £10.3 billion (as at 29 February 2020), which all benefit from a dedicated investment company sales and marketing capability.

  • Gresham House has committed to use reasonable endeavours to acquire a significant number of shares in the Company through the secondary market over the medium-term following the appointment of GHAM as the new investment manager.In addition, ASI has committed to use reasonable endeavours to procure buyers for a significant number of shares in the Company.

Details on the appointment of the new investment manager

The Heads of Terms agreed provide that the new IMA will be on substantially the same terms as the Company’s existing management arrangements and contain the following key items:

  • The level of the fees will remain unchanged:

    • Annual management fee of 0.75% per annum of Net Asset Value; and

    • Performance fee of 10% of gains in excess of the FTSE Small Cap (ex Investment Companies Index) plus 2% calculated on a rolling 3 year basis and subject to an absolute high water mark. As part of the new appointment, the Company has agreed to re-set the absolute high watermark and start a new performance period for the calculation of performance fees on the date of the appointment of the new manager.

  • There will be no management fees payable by the Company for the first 6 months following the appointment of the new manager.

  • The new IMA shall be terminable by either party serving 6 months' notice, such notice to be served at any time after the first anniversary of the appointment of the new manager.

The appointment of GHAM as interim investment manager is contingent on obtaining AIFM approval from the FCA, expected to be achieved within one to two months, and the execution of the new IMA.  The appointment of Aberdeen Standard Gresham House as investment manager is currently expected to become effective in Q2 2020.

Analyst and investor call

A call for analysts and investors will take place at 7.45am this morning.  Please contact Camarco, on the details below, for dial-in details.

Enquiries:

Strategic Equity Capital plc
Richard Hills (Chairman)
(via Camarco below)

Investec Bank plc (Broker)
Lucy Lewis                    + 44 20 7597 4000
Tom Skinner                                       

Camarco (Financial PR)
Ed Gascoigne-Pees       +44 203 757 4984/4994/4993
Jennifer Renwick
Eddie Livingstone-Learmonth


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