Richard Staveley, the former portfolio manager of the trust who quit in May this year, will join Harwood and has been proposed to return as the lead portfolio manager.
Staveley, UK small-cap specialist and former partner at River and Mercantile, left GHAM only 20 months after joining.
His appointment will begin after contractual restrictions from GHAM end on 1 December.
The trust’s investment management agreement with GHAM has been terminated “with immediate effect”.
As part of the strategic review the board considered other options, including a run-off of the portfolio, and concluded that these alternatives were “unlikely to be in the best interests of shareholders as a whole at the current time”.
Helen Sinclair, interim chair of the trust, said: “We, as the independent directors, firmly believe that Harwood has demonstrated exceptional expertise over the long-term as a specialist investor in public and private equity.
“Harwood intends to commit capital to investing in the team and marketing the company. The independent directors believe that this, coupled with continued strong investment performance, will help achieve appropriate scale and close the discount over the medium term. All these initiatives are in the long-term interests and benefit to shareholders.”
Christopher Mills, CEO of Harwood, added that the firm believes “the opportunity for experienced investors in UK small companies is significant”.
“We see the market as often highly inefficient, with a lack of research coverage providing the conditions for a focused approach to select the very best opportunities for strategic investments to drive strong returns for shareholders. We have led the market in this engaged manner for many years, demonstrating excellent outcomes in both public and private equities, and we look forward to welcoming Richard, shortly, when he can continue his excellent work for the company,” Mills said.
Harwood is part of Harwood Capital Management Group which had £2.3 billion of assets under management invested in public and private equities, as at 30 June 2021. The group was established in 2011 by Christopher Mills after the sale of JO Hambro Capital Management which he co-founded in 1993.
As part of the change of management, the board have agreed to introduce a significant reduction in management fees. Under the agreement with Harwood, management fees will reduce from the current level of 1.5% of NAV per annum, to 1.25% of NAV up to £25m and 1% thereafter.
The two parties have also agreed a revised performance fee of 10% of outperformance over the higher of a 6% total return hurdle and the high watermark. This is expected to result in “a very material reduction in performance fees”, the announcement said.
If the NAV of GHS exceeds £100m, Harwood has agreed to cap aggregate performance fees and management fees at 3% of NAV.
Further to the appointment of Harwood, the asset manager has proposed to purchase the entire GHAM holding of the trust.
GHAM stands as the largest shareholder of the trust, owning 23%.
Harwood said it would buy the shares at a price equal to the latest published NAV per share, to “facilitate a smooth transition in the interests of all shareholders”.
Harwood’s investment in GHS will be financed from its existing cash resources.
Harwood and GHS have also entered into a conditional subscription letter which will see Harwood subscribe for up to 348,088 new GHS shares, representing up to 10% of the trust’s current issued share capital, at a price equal to the latest published NAV per share.
However, this subscription will be scaled back if necessary to ensure Harwood’s aggregate shareholding in GHS does not exceed 29.9%.
Mills said “through an investment of Harwood’s owners’ capital, we are contributing to greater scale, and becoming a genuine long-term partner that should help GHS unlock further value over time”.
As part of the agreement the two parties have also made “binding commitments to ensure the independence of the board”.
Harwood has irrevocably undertaken not to exercise any of its voting rights above 10% on any resolution which is proposed at any general meeting of the company without the written consent of the independent directors.
The notice period for termination of a new investment management company without cause will reduce from 12 months to six months.
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