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QuotedData’s morning briefing 22 January 2021

QuotedData's Morning briefing

In QuotedData’s morning briefing 22 January 2021:

  • Utilico Emerging Markets (UEM) has made a statement in relation to US Executive Order 13959. This order, which was signed by Trump in the final days of his presidency, prohibits US Persons from purchasing publicly traded securities of 35 Chinese companies identified as Communist Chinese Military Companies. UEM has confirmed that, as of 20 January 2021, it has no direct holdings in any of these 35 companies and, following analysis by UEM’s joint portfolio managers, no known indirect holdings via its investee companies.
  • St Peter Port Capital (SPPC) has provided an update in relation to its ‘Buried Hill’ asset. SPPC says that, on 21 January 2021, an announcement was made that the Turkmen and Azeri Governments have signed a Memorandum of Understanding (MOU) covering the development of a disputed area in the Caspian Sea. SPPC says that it has been separately confirmed that the area includes the hydro-carbon blocks under licence to Buried Hill by the Turkmen Government and, while it is not yet clear what the impact of the MOU will be on the final commercial arrangements for developing the field, which is to be renamed Dostluk, SPPC says that the ending of this longstanding dispute seems to be a historic milestone in unlocking the development of the field.

  • Grit Real Estate Income says that the Financial Conduct Authority (FCA) has approved its transfer of the listing of its shares from a standard listing (shares) to a premium listing (commercial company) on the Official List. The transfer will take effect at 8.00 a.m. today.
  • The board of BH Macro has announced that it has received a letter from Brevan Howard Capital Management LP, the Company’s manager requesting a number of changes to its management agreement. Its requestes can be summarised as follows:
    • That the fixed component of the fee paid to the Manager (the sum of the management fee and the operational services fee) is raised to a level of 2% per annum, somewhat lower than the 2.5% fee level that was paid by the Company for most of its life, prior to 2017.
    • That the notice period is extended to 12 months, shorter than the 24 months’ notice that applied until 2017.
    • That share repurchases or redemptions in excess of an annual allowance, being 5% of the shares of that class in issue as at 31 December in the prior calendar year (the “Annual Buy Back Allowance”), in any calendar year attract a fee payable to the Manager of 2% of the repurchase price.
    • That a mandatory liquidation shareholder vote is automatically triggered if the Company NAV is lower than $300 million at the end of any calendar quarter. Were any such vote to be passed, the Company would be liquidated and an amount equal to 2% of the Company NAV (net of the Annual Buy Back Allowance for the relevant calendar year that remains unused) would be paid to the Manager.

[QD comment: A manager asking for a board to convene and EGM to request an increase in its fees is, in itself, a very unusual development. However, a closer look reveals proposals that swim against the prevailing tide, both in terms of more simple and competitive fee arrangements as well as shorter notice periods to terminate management contracts. Quite frankly, a 2% base management fee and a 12-month notice period both look decidedly out of date, but to request a 2% cut on repurchases looks to be nothing short of egregious and self-serving. In the managers defence, it is fair to make the argument that, if BH Macro is to receive the same level of attention as Brevan Howard’s other clients, then its fee arrangements need to be comparable – it simply is a matter of incentives. However, if Brevan Howard is suggesting that it does not make sense for them on the existing terms, I think the board should be taking a long hard look at the fund’s track record and be holding a beauty parade to look at alternative options. Personally, I would prefer an investment in a fund such as Scottish Mortgage, which has returned an annualised return of 39.9% during the last five years and charges just 0.30% per annum on the first £4bn of total assets less current liabilities, and 0.25% per annum on amounts above £4bn thereafter. This stalwart of the investment companies sector has a management agreement that terminable on six months’ notice. I fully acknowledge that I have just hand-picked this as a well-known example that most readers will recognise, but there are plenty of other vehicles that also have strong long-term track records, at a fraction of the cost, whose investment objectives are more comparable to what BH Macro currently offers. Given this, I cannot help wonder whether Brevan Howard have just effectively served itself notice?]

We also have BB Biotech’s preliminary results and dividend increase.

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