Polar Capital Financials Trust to continue past original wind-up date
Polar Capital Global Financials Trust updated the market on the future of the company on Thursday, after its chairman and corporate broker Investec Bank conducted meetings with major shareholders.
The London-listed firm said a majority of those shareholders expressed a desire to maintain an exposure to its investment strategy beyond the end of the current seven-year fixed life in May.
As a result, the board was making its proposals for Polar Capital’s future, explaining that subject to the approval of shareholders as well as the relevant regulatory approvals, it was intending to implement a number of plans.
Looking at its investment strategy, the company said overall it would remain unchanged, with the company set to seek to achieve its objective by investing primarily in a global portfolio of listed or quoted securities issued by companies in the financials sector, operating in the banking, insurance, property and other sub-sectors.
Structure-wise, the firm said it would continue to operate as an investment trust with an independent board and third party investment manager.
“The company's current seven-year fixed life structure will be adapted to instead offer a five-yearly tender offer to all shareholders and the company's articles of association will be amended, so that the existing commitment to wind up the company by no later than 31 May 2020 will be deleted,” the board said in its statement.
Polar Capital noted that its current benchmark was the MSCI World Financials + Real Estate Net Total Return Index, in sterling with dividends reinvested.
Given its level of portfolio exposure to emerging market financial equities, and its limited portfolio exposure to real estate equities, it said the benchmark would be changed to the MSCI ACWI Financials Net Total Return Index, also in sterling with dividends reinvested.
Looking at fees, the company said the increased industry focus on cost reduction was a “key theme” in the shareholder meetings.
In light of that feedback, the board said it had agreed a reduction in the annual management fee with Polar Capital - currently 0.85% of the lower of its market capitalisation and its net asset value - to an annual rate of 0.70% of its net asset value.
“In addition, going forward, the performance fee will be subject to an increased hurdle rate, with further details to be provided in the forthcoming circular.”
The dividend policy would remain unchanged, with the firm continuing to target a policy of dividend growth.
It would also continue to employ “cautious” levels of borrowing from time to time, with the aim of enhancing returns, subject to an increased overall maximum of 20%, as opposed to the current 15%, of the net asset value at the time the borrowing is taken out.
“The board continues to believe in the investment manager's strategy and remains optimistic about the outlook for the global financials sector,” the directors said.
“Consequently, ordinary shares bought back under the forthcoming tender offer and any shares subsequently bought back by the company will be placed into treasury and, in the event of the company's shares trading at a sustained premium to net asset value over a reasonable period of time, the board will proactively seek to re-issue these shares into the market.”
Polar Capital said it believed the opportunity for shareholders to tender their shares every five years would act as a “meaningful support” to the share rating going forward.
In addition, the board said it intended to adopt a proactive approach to providing liquidity in the company's shares, by using the share buyback authority on an ad hoc basis.
“As a result of these measures, the board would expect that, in normal market circumstances, the shares will trade at an average discount to net asset value of no wider than approximately 5% over the longer term.”
In light of the proposed change to the structure, the firm said a tender offer would be made to all shareholders who did not wish to continue their investment in the company, at the prevailing net asset value per ordinary share less costs and other appropriate adjustments.
“[These] proposals will be conditional on the size of the company's net assets immediately following the tender offer,” the board said.
“Should the outcome result in a size which, in the board's opinion, is too small to sustain, the board will put forward proposals for the liquidation of the company together with the option of an appropriate rollover vehicle for those shareholders wishing to maintain exposure to the asset class.”
At 1510 GMT, shares in Polar Capital Global Financials Trust were up 1.52% at 147.71p.