EDGE VCT released their half year report on 1st November, and there was no treat for shareholders. The results show yet another drop in NAV, with the valuation of each asset either unchanged or virtually unchanged. The drop therefore is entirely due to dividends and running expenses. (Dividends were paid to H holders and only a fraction of the I holders; the rest were left with an empty sweet bag). The H class now has £ 2.27 mio of net current assets, and incurred total expenses of £127k in the half year, compared to the larger I class which had only £510k of net current assets and incurred £655k of total expenses in the period. If expenses continue at this rate, a rather quick liquidation of more of the concert promotion investments is likely just to cover costs and management fees of the I class.
The second Halloween RNS contained another interesting item. It stated that
On 31 October 2017, the Company and the Investment Manager entered into a deed of variation of the Investment Management Agreement so that notice of termination of the Investment Manager’s appointment can now only be given by either party in respect of all classes of share in the capital of the Company.
The Board of directors of the Company, having been so advised by the Company’s sponsor, Howard Kennedy Corporate Services LLP, considers that the variation to the Investment Management Agreement is fair and reasonable so far as the shareholders of the Company are concerned.
Shareholders will remember being blessed with a deed of variation of the IMA last year which was similarly described as being fair and reasonable. In that variation, the Board agreed to simply raise the total cost cap from 3% to 3.75%.
This year, there are two effects from the new variation. The I class shareholders (planned exit) would have been able ask the Company to give notice to the Manager in April 2018, and the H class holders (evergreen) would have to wait an extra year. By placing them on a “coterminous basis”, the inference is that the I class management contract has de facto been extended by a year. What’s more, it appears that a simultaneous vote by both classes to terminate would have to be reached before the Board could be convinced to terminate the contract, which further entrenches the position of the chronically underperforming manager. The I class, representing approximately 5/6 of the total fund, should have exited some years ago. Instead, it is now locked into a high level of management cost and expense for the foreseeable future. It is hard to see how these actions by the Board are for the benefit of shareholders.
Please join our VCT Group, if you have not already done so. Strength in numbers is needed if we are to fight against this kind of behaviour.