- Share buyback on the cards
- Performance fee slashed
- Consulting with shareholders on strategy
Investment trust Chrysalis (CHRY), which owns stakes in ‘innovative, high-growth private companies’ such as Swedish buy-now-pay-later firm Klarna and UK challenger bank Starling, announced it would re-jig its capital allocation policy to allow it to buy back shares while slashing the performance fee it pays to its manager.
Shares in the trust, which had lost over 30% so far this year, jumped as much as 9% to 60p on news of the changes.
PRIORITISING SHAREHOLDER RETURNS
Under its new capital allocation policy, the trust will ‘aim at all times to maintain a prudent cash reserve’, which the board and portfolio manager consider to be £50 million.
Having met the cash reserve requirement, the company will then prioritise shareholder returns, with the board currently aiming to buy back up to 15% of the share capital ‘and, if required, seek further authority from shareholders to continue share buy backs until £100 million of cash has been distributed, conditional on the ongoing discount’.
Finally, the company is proposing to balance its capital allocation between further distributions to shareholders and portfolio investments, aiming to distribute up to 25% of net cash profits on realisations.
Alongside these changes, the trust will ask investors to approve changes to its performance fee at a general meeting to be held the same day as the AGM (annual general meeting).
Among the proposals are reducing the overall performance in any one year from 20% to 12.5%, imposing a cap of 2.75% of NAV (net asset value) and deferring payment of 75% of the fee subject to long-term performance conditions.
CONSULTATION PROCESS
Ahead of its AGM, where a continuation vote is due to take place, the board will begin consulting with major shareholders on the trust’s existing portfolio and its future investment strategy.
Most trusts have a continuation vote every few years, in order for shareholders to vote on whether to let the company continue as it is, or to wind it up in the case that the shares have traded at a significant discount to NAV for an extended period, for example.
‘Both the board and the portfolio manager are excited about the current prospects for the portfolio and remain confident in the Chrysalis investment strategy, which backs high growth, innovative businesses which are leading transformation within their sectors’, said the trust’s chairman Andrew Haining.
‘The board looks forward to discussions with shareholders in the coming months regarding the proposed capital allocation framework and the future direction of the company.’
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