Invesco trust board was “overly aggressive” in fee negotiations

The portfolio managers of an Invesco Perpetual trust have given their first public response in an ongoing row about fees and governance.

Paul Read and Paul Causer, managers of a trust called Invesco Perpetual Enhanced Income Limited, say their relationship with the board had broken down following an “aggressive” renegotiation of fees.

Their response came on Monday (11th), after the chairman of the trust wrote to shareholders urging them to vote against his and another director’s proposed removal by Invesco Perpetual.

The chariman’s letter was issued with a circular that summed up the situation and highlighted how Invesco had resigned as manager after the fees were renegotiated.

The trust’s unaudited net assets at April 30 were £122 million, while fees paid to Invesco amounted to £12.3 million between 2007 and 2017, the chairman, Donald Adamson, says in his letter to shareholders.

Costs are at the heart of the issue, as a circular sent with the letter makes clear by dating the start of the dispute to when the board began renegotiating the terms of the investment management agreement with Invesco in November 2017.

The main focus of the negotiation was the level of management fees and the removal of a performance fee.

Invesco subsequently resigned as investment manager in April this year, though this was not done until after the firm initially wrote to agree with the new fee, according to the circular.

The board then invited proposals from other fixed income managers and bids by potential providers were strong enough to demonstrate why Invesco’s position was “untenable”, the circular says. Every proposal would have led to lower management costs and no manager had proposed a performance fee.

Invesco apparently declined to take part in the process.

But then, on May 22, the investment company received a ‘requisition’ notice asking for the removal of Adamson and Richard Williams, who is chairman of the management engagement committee.

Invesco Perpetual wants Hazel Adam and Howard Myles to be appointed instead of Adamson and Williams.

“The Board believes that this requisition is firmly against the interests of the company’s shareholders,” the circular said, and it further described the move as a “cynical attempt’” by a “very large asset manager” to use concentrated voting power against retail investors, who form the majority of the share register through platform clients and wealth managers.

In his letter, Adamson says Invesco’s base fee arrangements amounted to a current blended rate of 0.90%. The investment management cost in the past financial year amounted to 1.86% of the investment company’s 2.15% ongoing charge.

In their response, the trust’s managers said the board had not acted in the interests of shareholders.

Invesco did not resign over money, said Read and Causer who have managed the portfolio since 2001 and said he “enjoyed” it. The resignation was due to the behaviour of the chairman, which made managing the trust “untenable for Invesco”.

They said the board had given the managers a “48-hour ultimatum” during the “overly aggressive” fee negotiations.

“Proud” of the trust’s track record, they described performance as strong with a post-fee share price rise of over 108% through the last ten years compared to the 64% return of the high yield sector.

They also said shareholders had expressed a loss of confidence in the board in light of Invesco’s resignation because Invesco’s management was the “primary reason” why many of them invested in the trust.

“The drop in share price following Invesco’s resignation is a key shareholder concern – 6% on the day the resignation was announced and some 10% to date,” said Read and Causer in their statement.

 An extraordinary general meeting is due to take place in Jersey on July 20.

©2018 funds europe



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