ShareSoc Recommends Voting Against New Performance Fee at Dunedin Enterprise Investment Trust

PRESS RELEASE 39 (24/10/2012)

Dunedin Enterprise Investment Trust Plc has announced proposals for a new Performance Fee for the managers of this private equity investment trust. Like other such trusts, it trades at a substantial discount to net asset value. To tackle this issue they decided on a change of investment policy some time ago which involves selling some of their investments in third party funds and returning cash to shareholders. This will of course reduce the size of the fund significantly. ShareSoc certainly supports an active discount control policy in investment trusts so we did not oppose this change of policy.

It is now proposed to compensate the manager for the reduction, and the fact that the realisations of those investments might have to be done at a discount, by paying the manager a Performance Fee if they realise more than 85% of the net asset value (i.e. presumably a lower loss than might otherwise be expected, but based on a doubtful supposition in our view). They might get up to 1.5%, on a sliding scale, of the gross proceeds from these arrangements.

An Unnecesary Incentive Fee for Cancelling Undrawn Commitments

In addition, they will get the same applied rate on the associated “undrawn commitments”, i.e. the commitments to subscribe cash for new investments in those funds which have not yet been “called off” by the fund manager. This is despite the fact that they get a management fee for cash held in the fund equivalent to what they got on undrawn commitments (so any cancelled commitments will get the same level of management fee).

In summary, these proposals simply look like the manager is being paid an additional incentive fee just to execute the policy decisions that the board has decided upon. But as the manager, that is what they are being paid for anyway surely? ShareSoc argues that a change of investment policy, and in particular a decision to reduce the size of the fund and return cash to shareholders should not cause any additional compensation to be paid to the fund manager.

New proposals could mean a large increase in overall fee percentage

The last realisation of third party funds (Capiton) was actually at a £0.2m premium (about 5%) to the carrying value in Dunedin Enterprise’s accounts. If all third party fund investments were sold at that premium, the additional performance fee payable to the fund manager could be as much as £0.9m. This compares with the total investment management fee of £1.4m paid to the fund manager last year (which is primarily based on funds under management) and that is of course not affected by the new proposals.

ShareSoc therefore recommends that shareholders in Dunedin Enterprise vote AGAINST the new performance fee at the General Meeting (Resolution 2) on the 8 th November (but vote FOR the tender offer – Resolution 1).

More Information

Note that the calculation of the new performance fee is very complex, and is documented on pages 26 and 27 of the circular (see http://www.dunedinenterprise.com/pdfs/DENT_Tender_Offer_Final%2016_10_12.pdf ). It includes a cap on the performance fee payable under the scheme, and the fee is graduated depending on the extent of the discount/premium at which the assets are sold (as against their book value).

For further information, please contact:

Roger W. Lawson,
Chairman,
ShareSoc Telephone: 020-8467-2686
Email: info@sharesoc.org

Note any members of the press who wish to receive a complimentary copy of our informative monthly newsletter should send a request to info@sharesoc.org . Our newsletters cover not just the affairs of our organisation but contain general financial news and commentary. An example of our past newsletters is available on our web site. You can also follow ShareSoc on Twitter from @ShareSocUK.

About the UK Individual Shareholders Society (ShareSoc)

ShareSoc represents and supports individual investors who invest in the UK stock markets (and who own as much as 30% of the shares in UK public companies in aggregate). We are a mutual association controlled by our members with “not-for-profit” articles and incorporated as a company limited by guarantee. The organisation is financed by member subscriptions, donations from supporters and by the services it provides to members. Associate Membership of ShareSoc is free and is open to everyone with an interest in stock market investment. More information on ShareSoc can be obtained from our web site at www.sharesoc.org .

Post Date: October 24, 2012

Group description:	SIGnet Taunton is a new group with around 10 keen members at present, with a range of investment styles and experience. We welcome new members.
Meeting Type/Venue:	In person meetings at a golf club near to the centre of Taunton.
Meeting Frequency/Timing:	We meet on the first Monday of every month at a golf club near to the centre of Taunton, 11am until 3pm with a lunch break.

Group description:	An online group for those who are new to investing, or have only been investing for a few years. Including topics such as: – What is a share or a bond, why and how to buy them. – Comparing funds, unit trusts, Investment trusts and exchange traded funds. – Portfolio management and diversification. – ISAs, pensions, SIPPS and how to save tax. – How terms such as PE ratio and dividend yield are used to value a share. – How to use technical analysis or charting.
Meeting Type/Venue:	Online using Zoom.
Meeting Frequency/Timing:	Meetings are usually held on the last Monday of the month at 7:00pm.

Group description:	An online group for those who already have some experience in investing. Covering topics such as finding companies to invest in, financial statements and ratios, valuation / margin of safety, analysis of companies and investment trusts and exchange traded funds.
Meeting Type/Venue:	Online using Zoom.
Meeting Frequency/Timing:	Meetings are usually held on the last Wednesday of the month at 7:00pm.

Group description:	The Equity Income Group welcomes investors of all levels of experience, from beginners to advanced. The focus of meetings is on dividend paying Investment Trusts, though there is also discussion around individual shares.
Meeting Type/Venue:	Meetings are held online.
Meeting Frequency/Timing:	Meetings are held every 6 weeks on a weekday between 7 and 8:30pm.

Group description:	The Group welcomes investors of all levels of experience, from beginners to advanced. The focus of meetings is on all types of income generating financial instruments, from stocks through Trusts and Funds and ETFs to retail bonds. Meetings involve presentations from members, who are also expected to lead discussions from time to time, as well as discussions on what has been bought and sold since the last meeting.
Meeting Type/Venue:	Meetings are in-person in a venue in Central London.
Meeting Frequency/Timing:	Meetings are usually held on the last Thursday of every other month, starting with an informal lunch around 1pm followed by discussions until around 5pm.

Group description:	A welcoming group open to all types of investors. Typical meeting content is to have a deep dive presentation on a topic selected by the participants and a session on buy/ sell/ key lessons learnt last month.
Meeting Type/Venue:	In person at a friendly pub close to Piccadilly Circus
Meeting Frequency/Timing:	Monthly during the evening on the first Wednesday of the month.

Group description:	Our group is a broad church that contains investors of varying experience. Our members’ backgrounds are diverse and include corporate banking, engineering, teaching and the leisure industry. We generally pick a discussion topic for every meeting, e.g. housebuilders or the defence industry, and members are invited to research and discuss different aspects or companies within that industry. We also discuss stocks and investment trusts that we have bought, sold or are interested in and the reasons behind our decisions, and try to make sense of the ever changing investment environment. Discussions are robust and challenging but we are a friendly and approachable group who welcome investors of all levels – we just ask that you contribute, at whatever level you can.
Meeting Type/Venue:	Our meetings are held in a private room at a nice pub near to South Ealing tube station (Piccadilly Line), not far from Ealing Broadway (District, Central and Elizabeth Line).
Meeting Frequency/Timing:	We meet every 2 months, usually on a Wednesday morning at 11am.

Group description:	All levels of experience welcome. A typical meeting agenda includes: – Macro Environment – Trades: Members review existing positions and identify securities with promising TA entry patterns or setups and with suitable risk/reward. Any security, long, short, futures, options may be considered. The convener takes actual positions in trades and maintains his own detailed ledger, accurately measuring performance of individual securities and cumulative activity. Members are notified by e-mail prior to the entries or exits that are decided upon. Following each meeting an updated copy of the ledger is circulated together with the next meeting agenda. Members may wish to maintain similar ledgers of their own but there is no obligation to do so. – Technical Analysis: Techniques and systems used in trades. Members can request discussion of particular aspects of TA.
Meeting Type/Venue:	Online via Zoom
Meeting Frequency/Timing:	The first Tuesday of every month from 7 to 9pm

Group description:	Open to all investors / people with an interest in investing. Typical meeting will involve members talking about recent purchases, successes, failures and possible future purchases. Also with occasional visiting speakers or members making presentations on a topic of interest.
Meeting Type/Venue:	We aim to meet on the last Tuesday of each month in a private room at a pub in Playhatch. Start time 7pm with members encouraged to meet up around 6pm for a bite to eat / drink before hand, if their diaries allow.
Meeting Frequency/Timing:	7pm on the last Tuesday of the month. Meetings likely to last about two hours but with informal ‘overspill’ before / after.

ShareSoc Recommends Voting Against New Performance Fee at Dunedin Enterprise Investment Trust

PRESS RELEASE 39 (24/10/2012)

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