Aurora Investment Trust plc
Publication of Shareholder Circular
On 24 September 2015, the Board announced that the Company's existing manager would be acquired by Phoenix Asset Management Partners Limited. Today, the Company has published a shareholder circular containing further details of the Proposals and notice of General Meeting to be held on 11 December 2015.
Information on Phoenix Asset Management
Phoenix Asset Management was set up in 1998 by Gary Channon and now has approximately £570 million of assets under management. The core investment team of Phoenix has been together for over 14 years.
In the years since it was founded in 1998, Phoenix has experienced only three negative return years, 1999, 2002 and 2008, whereas the FTSE All-Share Index, which is the most appropriate benchmark, has had seven negative years in the same period. The annualised return achieved by Phoenix since it was founded is 10.1 per cent. (after fees) against a benchmark return (including dividends) of 4.4 per cent. Cumulatively this resulted in a return from May 1998 to September 2015 of 435.1 per cent. (after fees) versus a total return for the benchmark of 110.6 per cent.
Further information on Phoenix can be found in the Appendix to this announcement.
The proposed new investment policy
The Company currently invests in a diversified portfolio, the majority of which is made up of investments in securities listed on the London Stock Exchange with some exposure to fixed interest and equity related securities. The Company's current objective is to achieve capital growth for its Shareholders.
The new objective of the Company will be to provide Shareholders with long term returns through capital and income growth. The Company will seek to achieve this objective by investing in a concentrated portfolio of UK listed equities, typically consisting of 15 to 20 holdings. The Company's benchmark will change to the FTSE All-Share Total Return.
The Company has not set maximum or minimum exposures for each individual holding or sector, but the Board will monitor exposure levels closely to ensure that there is adequate diversification in the portfolio. The amount of capital deployed will be restricted at cost prices with a maximum of 15 per cent. to any one investment.
The Company does not currently intend to use gearing. If the Board decided to utilise gearing the aggregate borrowings of the Company would have to comply with the limits set out in the Articles of Association which restrict borrowing to 30 per cent. of the aggregate of the paid up nominal capital plus the capital and revenue reserves.
The full text of the proposed investment policy is set out in the circular.
Following approval of the new investment policy, it is intended that the investment portfolio will be realigned in line with the investment style of Phoenix. In the event that the resolution to approve the new investment policy is not passed the Board will consult with Shareholders regarding the future of the Company.
Dividend policy
In the light of the proposed new investment policy, there will be no fixed dividend policy. However, the Board will distribute substantially all of the net revenue arising from the investment portfolio. Accordingly the Company is expected to continue to pay an annual final dividend, but this could be lower than the level of recent dividends and may vary each year.
Benefits of the Proposals
The Board believes that by adopting the successful investment style adopted by Phoenix since its establishment in 1998 the Company will be a more attractive investment opportunity for many new investors. This will allow the Company to grow over time through the issue of new Shares at a premium to NAV.
The Board further believes that the long term view adopted by Phoenix will better prepare the Company to deal with fluctuations in the financial markets. By focusing on a smaller portfolio of assets the Board believes that the Company will be better placed to provide Shareholders with long term returns.
Proposed changes to the investment management arrangements
Subject to the approval of the new investment policy at the General Meeting, the appointment of Phoenix as the Company's Alternative Investment Fund Manager will become effective upon termination of the Company's existing investment management arrangements with Mars Asset Management Limited and the appointment of a depositary as described in the circular.
Under the terms of the proposed new AIFM Agreement Phoenix will not earn an ongoing annual management fee but will be paid an annual performance fee. The performance fee will be equal to one third of the outperformance of the Company's net asset value total return (including dividends and adjusted for the impact of share buy backs and the issue of Shares) over the FTSE All-Share Total Return for each financial year. The Company's net asset value return will be based on the weighted number, and NAV, of Shares in issue over the relevant period.
The total annual performance fee will be capped at 4 per cent. per annum of the Net Asset Value of the Company at the end of the relevant financial year, in the event that the NAV per Share has increased in absolute terms over the period, and 2 per cent., in the event that the NAV per Share has decreased in absolute terms over the period. Any outperformance that exceeds these caps will be carried forward and only paid if the Company outperforms, and the annual cap is not exceeded, in subsequent years.
The performance fee will be subject to a high water mark so that no performance fee will be payable in any year until all underperformance of the Company's Net Asset Value since the last performance fee was payable has been made up. The performance fee will also be subject to a clawback if over a rolling three year period the Company underperforms.
The performance fee will be paid to Phoenix in Shares (issued at the NAV per Share on the date of issue) and such Shares must be retained by Phoenix for a minimum period of three years from the date of issue. It is intended that the performance fee will be charged to the capital reserves of the Company.
Tender Offer
The Board has announced that, as part of the Proposals, it intends to offer Shareholders a cash exit following the appointment of Phoenix as investment manager of the Company and realignment of the investment portfolio.
Any cash exit by means of a Tender Offer would be at a price equal to a two per cent. discount to the diluted, cum income NAV per Share less the direct costs and expenses of effecting the Tender Offer, which is expected to result in a Tender Offer Price of approximately a 3.5 per cent. discount to the NAV per Share. Since the date of the announcement on 24 September 2015, the Shares are currently trading at an average discount of approximately 1.62 per cent. to the NAV per Share.
The Board will continue to monitor the price of the Shares and the level of discount (or premium) to the NAV per Share at which they trade. The Board only intends to propose the Tender Offer if it gives Shareholders the opportunity to exit the Company at a price materially better than can be achieved through the market in normal market conditions.
The implementation of the Tender Offer remains subject to the discretion of the Board
Related party transaction
As clients of Phoenix hold more than 10 per cent of the voting rights in the Company, Phoenix are considered to be a "related party" for the purposes of the Listing Rules. Phoenix has agreed to meet the Company's costs in preparing the circular, convening the General Meeting and drafting and negotiating the AIFM Agreement and Depositary Agreement. This constitutes a smaller related party transaction under Listing Rule 11.1.10R. The estimated costs are approximately £50,000.
Expected Timetable
2015
Latest time and date for receipt of Forms of Proxy from Shareholders
11.30 a.m. on 9 December
General Meeting
11.30 a.m. on 11 December
Posted on 17 November 2015