Rebel shareholders call for Strategic Equity Capital to be wound up

16th March 2021 10:44

Tom Bailey from interactive investor

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A shareholder vote on the trust’s future will take place later this month. 

Two long-term shareholders in the Strategic Equity Capital (LSE:SEC) investment trust have called for the trust to be wound up, accusing the board of mismanagement.

In a letter to the trust’s board, Ian Armitage and Jonathan Morgan expressed concern over how the trust has been run over the past few years, which they argue has led to poor performance. The duo own 7.7% of SEC.

According to the shareholders, the trust’s performance has suffered for two key reasons.

First, they argue that several changes to the investment management team have “result[ed] in the abandonment of the long-standing and proven investment strategy”.

Last year, the trust’s mandate was given to Gresham House, with Ken Wotton appointed manager. It was previously managed by GVQ Investment Management.

Second, the trust no longer has a strict discount control mechanism. Armitage and Morgan point out that it has consistently traded at a discount to its net asset value (NAV) of greater than 10% for over five years.

With this in mind, Armitage and Morgan argue that the “simplest option” is for the SEC to be “discontinued”.

This proposal will be put to shareholders at the emergency general meeting on 30 March.

To take part, sign up to interactive investor’s free shareholder voting service

If shareholders do vote to wind up the trust, an additional rollover option has been added. This will give shareholders the option to remain with Gresham House under a new strategy.  

Armitage and Morgan argue that if the initiative fails and the trust continues to exist, it is vital that the board reinstates the trust’s discount mechanism policy “as a matter of urgency”.

Armitage and Morgan have also called for the board to be replaced if the trust continues to exist.

The duo claim that the board has so far failed to address any of the issues raised. They said: “We are mindful that this extraordinary general meeting has been called as a direct result of the absence of any constructive discussions between the board and the increasing number of shareholders who are uncomfortable with the current discount and management situation.”

In response, the board says it “has confidence in the management teams strategy for the portfolio and a vote against continuation of the company at this early stage would, in the boards opinion, not give the management team sufficient time to implement and demonstrate the benefits of their strategy and would, accordingly, be likely to prejudice the performance of the portfolio and therefore the interests of shareholders”.

Gresham House, in response, says there “has been no change in the stated investment strategy” since its appointment.

Gresham House was only appointed in May 2020 and is focused on fulfilling this long term investment mandate utilising its extensive investment resources and track record in this area of specialist investing whilst working with the board to act in the interest of all shareholders.

A resolution for the continuation of the company was passed comfortably very recently on 11 November 2020. There has been no change in the stated investment strategy since Gresham House’s appointment and this is set out clearly in the recent SEC interim report.” 

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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