- Record year for trust mergers
- Combination to create £353 million vehicle
- Kartik Kumar to join Phoenix
Artemis Alpha Trust (ATS) has agreed to be taken over by UK All Companies sector rival Aurora Investment Trust (ARR) as the record year for investment trust mergers continues.
Sub-scale, underperforming funds are combining with larger rivals to remedy wide discounts to NAV (net asset value) and create trusts large and liquid enough to attract wealth managers and retail investors.
The sector’s latest deal will create the enlarged Aurora UK Alpha, a significantly bigger company whose shareholders will benefit from lower ongoing charges and enhanced liquidity.
MAJOR SHAREHOLDER BACKING
Artemis Alpha’s assets are to be rolled into Aurora in exchange for the issue of new ordinary Aurora shares in to the former’s shareholders.
A cash exit option will be made available for up to 25% of Artemis Alpha’s issued share capital, allowing Artemis Alpha shareholders the ability to exit part of their investment.
Assuming no Artemis Alpha shareholders opt for the cash exit option, the enlarged Aurora UK Alpha would have net assets of roughly £353 million, an increase in size of roughly 65%.
The deal seems likely to go ahead, since major shareholders from both Aurora and Artemis Alpha have expressed support for the proposals, which would see the enlarged Aurora UK Alpha’s board, investment objective and management by Phoenix Asset Management Partners all left unchanged.
However, Artemis Alpha’s well-regarded lead manager Kartik Kumar has agreed to join Phoenix’s investment management team later this year.
SHINING A LIGHT ON AURORA
Whereas Artemis Alpha has delivered a negative share price total return of 11.8% over the last three years and currently sits on a double digit discount to NAV, Aurora has returned roughly 20% over the past three years and is on a single digit NAV discount.
For the uninitiated, Aurora is the value-oriented trust run by Phoenix Asset Management, the Gary Channon-guided firm which pursues a tried-and-tested strategy of investing in a concentrated portfolio of high-quality and thoroughly-researched businesses at attractive prices.
The merger also makes sense given some significant portfolio overlap, with the likes of retail conglomerate Frasers (FRAS), banking giant Lloyds (LLOY) and Phoenix-managed investment fund Castelnau (CGL) among the top 10 holdings of both trusts.
Lucy Walker, chair of Aurora, commented: ‘The Aurora Board is delighted to welcome Artemis Alpha Shareholders who will enter into an investment trust with a similar philosophy and portfolio, and the enlarged trust will benefit all shareholders through lower fees and better liquidity.’
Since the start of 2024, there have been 10 mergers agreed or completed, with nine of these involving equity trusts.
While most of the mergers in 2024 thus far have been ‘within the family’, the most notable agreed or completed deals involving different managers are Alliance Trust (ATST) and Witan (WTAN), Fidelity China Special Situations (FCSS) and abrdn China, and now Aurora and Artemis Alpha.
Deutsche Numis noted that Artemis Alpha’s co-manager John Dodd is retiring from Artemis at the end of the year, ‘which may have helped unlock the potential for corporate action. The performance record of Artemis Alpha has been unexciting in recent years, making it a likely target for consolidation, and recently suffered a write-down to one of its unquoted holdings. Given the significant portfolio overlap and a focus on a stock-picking approach, we can see the appeal of Aurora’s approach to Artemis Alpha’s shareholders.’
