Ventus and Ventus 2 – Voting Recommendations from ShareSoc – 28 June 2019

ShareSoc, the UK Individual Shareholders Society, has a campaign called the ShareSoc VCT Investors Group who campaign against egregious fees and long tenure NEDs and is supportive of the Ventus shareholder resolutions submitted by the Requisitioners.

 Some of the background is in my 18 June blog https://www.sharesoc.org/blog/vcts/vct-investor-group-ventus-ventus-2-vct-shareholder-resolutions/

We welcome the changes recently announced and we are glad that the Boards have responded to shareholder concerns and have engaged with ShareSoc.

ShareSoc’s recommendations for the Ventus and Ventus 2 AGMs which are being held on 8^thAugust 2019 are:

• Members should attend the AGMs on 8^th August, listen to what the Boards and the requisitioners have to say, seek answers to their questions and only then make up their minds. If members cannot attend, they should appoint a trusted proxy to vote their shares.
• We note that Tim Grattan, the long term and widely respected ShareSoc member and one of the founder members of ShareSoc’s VCT Investor Group, who is also a long term investor in Ventus funds, summed up his view as “This is too little too late. As it stands, I will be voting against the re-election of the current directors and in favour of all of the resolutions proposed by the requisitioning shareholders”
• If you cannot attend the AGM, nor appoint a trusted proxy, then ShareSoc recommend you vote against the re-election of the existing directors and vote for the new slate of directors. The main reasons why (at this stage) we have formed this view are:
  • The existing directors re-negotiated the contract with the investment manager in 2017 and the terms were too generous, in respect of
    1. The management fee, which only reduced to 2.00% in y/e 28 Feb 2023;
    2. The 20% performance fee was unchanged; and
    3. The 2 year notice period.

• • The new proposal, which the Ventus Directors say was initiated before the resolutions were requisitioned, is still too generous – not only in terms of the management fees, but also the 20% performance fee is unchanged, and this is despite the proposal to merge the 3 separate classes of shares; and the 2 year notice period will be increased to three years, from 8 Aug 2019, reducing to only two years after 8 Aug 2020.
  • It would be better to defer this proposal and negotiate a better deal. However, the only way to do this is to vote to remove the existing directors and appoint the ones proposed by the Requisitioners.

We note that we do not know the proposed directors personally and cannot comment on their appropriateness, but we do think it is very unfortunate that they are all male (while recognising the male dominance in renewables).

This as an example of the impact of the nominee structure on corporate governance (whatever the result in this instance). Approximately 30% of the shares are held by nominee and it has not been possible for the requisitioners to make contact with these “shareholders”. We asked the company if they knew if their communications had been forwarded by nominees to those with interests in shares and those with information rights and they were unsure. This is further evidence of the need for the Law Commission Review of Intermediated Securities to review the current nominee system.

Further Background on VCTs

Examples of egregious fee structures and of passive directors are to be found in many VCTs (Venture Capital Trusts). ShareSoc and its members campaign to try to rein in the worst offenders, see  https://www.sharesoc.org/campaigns/vct-investors-group/ . Please visit our site and join our campaign group.

Our principal objectives are:

1. To provide best practice guidelines on management fees, performance fees, directors’ tenure and independence.
2. To provide advice for investors on specific VCTs by Identifying existing holders willing to work with others to share knowledge, to identify areas of concern and to make recommendations.

We provide mechanisms for exchanging information, and we communicate our views to VCT Boards, managers, investors and others who may be able to influence the behaviour of specific VCTs.

Hence, when ShareSoc were approached by some Ventus shareholders with genuine concerns about the management of the trusts, we were happy to support them in promoting changes intended to benefit the shareholders of both Ventus VCTs.

One benchmark comparator is Gresham House Renewable Energy VCT1 and VCT2 (formerly Hazel), where the management fee is 1.15% and the performance fee is 20% above a (reasonable) threshold but is based on dividends, with a trigger of 100p NAV and a ratchet to 30% above an outstanding performance level, with 9 month notice period.

Disclosure: I own shares in Ventus VCT and Gresham House Strategic.

Cliff Weight, Director ShareSoc.