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Why should investors not see performance fee details at Northern VCT?

Northern Venture Trust (a VCT) introduced a management performance fee at a General Meeting on the 18th July. They did not have one before even though they had outperformed the very similar Northern 2 VCT over the last ten years who do.

I spoke against the introduction of such a fee at the General Meeting, and raised questions about how the fees were to be calculated, as did another shareholder. The calculations were not at all clear from the meeting notice. As the Chairman effectively avoided answering questions on this and did not clarify the performance fee calculation, I asked for a copy of the relevant part of the management agreement to be sent to me after the meeting.

Subsequently a letter clarifying the performance fee to some extent was received, but ultimately the request for copies of the relevant part of the management agreement has been rejected by the Chairman John Hustler. Why? What have they got to hide?

It does seem to me that there are no good reasons why investors should not see the relevant part of the management agreement, if not all of it. Why should investors in an investment trust not see the terms the board has agreed with the fund manager? Those terms are a quite critical aspect of the returns shareholders in the company might obtain.

There are already regulations that require disclosure of the fees in the company’s Annual Report but these are often a simplified summary. In the case of performance fees, particularly where there are transition arrangements, the calculations can be quite complex and are rarely explained in full. Indeed sometimes it happens that it is apparent that the board of directors do not understand them, or they retrospectively need adjusting because nobody understood the implications in full – as happened recently in ProVen VCT.

This is surely an area of regulation that should be tightened up.

Roger Lawson

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