Ventus and Ventus 2 VCTs– obstacles to a level playing field in unseating directors

By Cliff Weight, ShareSoc Director

I was pleased to see the highly respected and influential Investors Chronicle taking an interest in and writing a balance article on the Ventus funds, see

https://www.investorschronicle.co.uk/comment/2019/07/18/limits-of-influence/ The IC seems to think ShareSoc is leading and driving the campaign, whereas the campaign leader is Nick Curtis, but other than this point I think it is a very good article.

What is becoming apparent is how extremely difficult it is to unseat directors, because the playing field is tilted so much against shareholders. Below are some of the difficulties: IFAs giving bad advice, incumbent directors using expensive proxy consultants to solicit votes and develop influence strategies, asymmetric information on votes casts, and shareholders’ rights problems.

1. IFAs influence their customers

An IFA (let them remain anonymous for the moment) has decided to recommend to their clients that they vote for the existing Ventus and Ventus 2 Directors at the upcoming 8^th August AGMs. Said IFA cited these reasons:

i. The resolutions raised do appear to have brought a change from the current directors, fees look to be decreasing, and they are looking to merge the share classes next year.

ii.  As a company we have made the decision to back the existing directors, the majority of our clients hold the ‘C’ share class and performance has been good. For this reason, it is difficult to recommend clients to vote in favour of replacing the current directors.

My response to point i. is NEDs, like leopards, do not change their spots, especially old ones. The Temporis fees have not decreased enough. The existing directors have not done enough hard negotiating, nor will they in the future. They have said that, if re-elected, they will implement their proposed new fee arrangements immediately after the AGM.

As for point ii, the whole rationale in Nick Curtis’s campaign to remove the existing directors is that the Investment Manager has been overpaid, which has reduced the returns to shareholders and they will, under the current directors’ proposal, continue to be overpaid.

I feel sure that the IFA in question has recommended to their clients to invest in the Ventus funds and was paid handsomely for doing so, whilst at the same time failing to question the egregious fees for the investment manager. Perhaps, even if they have now realised that they may have erred in this respect, they do not wish to admit any error. So, nevertheless, they are still supporting management. There is a conflict with IFAs that to their credit the FCA is trying to address: that the IFA’s duty is to work in best interests of the customer, but often the IFA needs to keep warm its relationships with companies and fund managers.

Worse still, I rather suspect that these arguments are being considered by many other IFAs and they will also, sadly, side with management.

2. Incumbent directors using expensive proxy consultants to solicit votes and develop influence strategies

Another difficulty is that the Ventus directors have recruited Boudicca, a proxy solicitation firm, to help them in their defence against the shareholder requisitioned resolutions. When I last spoke to David Williams, the Chairman of Ventus VCT I told him I thought Boudicca were a very good firm, but did not come cheap. I asked him what he was paying them and he declined to give a precise budget but assured me it was “modest”.

Boudicca have telephoned shareholders, trying to persuade them to vote for the existing directors and against the shareholder requisitioned resolutions.

Shareholders who hold shares via nominee have also been contacted. To do this would require a S793 request to each of the larger/all nominees to ask for the names and contact details of those who hold Ventus and/or Ventus 2 VCT shares via nominee.

I wonder whether, if the vote looks close, the existing directors of Ventus and Ventus 2 VCTs will instruct Boudicca to do a last minute ring round to plead for votes in their favour. All this will cost money. Lots of money. Boudicca don’t come cheap. Is this a good use of shareholders’ funds? I think not! Is it in the interests of the incumbent investment manager to do this? Yes.

I shall write to David Williams, Chairman of Ventus, asking him again how much of shareholders money he intends to spend on this task. And whether he thinks this is a good use of shareholders’ funds?

There is an important point of principle here that needs to be driven home. A small company with a market cap of less than £100 million should not be using anything more than a modest sum on external proxy consultants. I suggest the modest sum is set at less than £10k.

3. Asymmetric information

Another issue is that Nick Curtis has asked to see the S793 interests in members (i.e. the names and address of those shareholders who hold Ventus shares via nominees), but to date has not been given any useful data. I have asked Nick to repeat this request in the strongest possible terms, as the company secretary is delinquent in replying to Nick’s request and as it is also the manager of the company shareholder register, it may now have more information.

As noted in point 2 above, Shareholders who hold shares via nominee have also been contacted. To do this, would have required a S793 request to each of the larger/all nominees to ask for the names and contact details of those who hold Ventus and/or Ventus 2 VCT shares via nominee.

Also, the company secretary will know the level of voting and votes for and against. This will enable the directors to adjust their plans accordingly and to pay advisers to phone up those shareholders who have not yet voted. Nick Curtis and the others who have requisitioned the resolutions do not get this information, so cannot focus on those who yet to vote.

4. CA 2006 limitations re shareholder register and nominees

 The shareholder register does not contain the email address or telephone number of the shareholder, so the only way for Nick Curtis to make contact with other shareholders is via a letter by mail, which is expensive and has a low response rate.

Finding out information about those who hold shares via nominees is even more difficult. ShareSoc’s shareholder rights campaign was set up to lobby to improve these problems in nominees and the shareholder register, see https://www.sharesoc.org/campaigns/shareholder-rights-campaign/.

All the above highlights how the playing field is tilted very strongly in favour of incumbent management. ShareSoc can and will lobby about this to the Government, Regulators and the Law Commission to ensure individual shareholders are treated fairly.

It also raises more questions for the 2 Chairmen of Ventus and Ventus 2 to answer at their AGMs on 8 August.

1. Wind farms are easy once they are up and running. Setting them up, getting planning permission, initial funding and initial contracts are the hard work. So why is a percentage fee required? Why not have a fixed fee in £? Or a mixture?
2. Are VCTs harder to manage than investment trusts, e.g. Gravis and Gravis Clean Energy has a management charge of 0.8% and no performance fee. What if anything is so special that a performance fee is required.
3. Are the skills of the Temporis managers so indispensable? Much of the work that has to be done is generic now. Have you analysed exactly what skills are required and identified which skills are easy to get from recruiting others.
4. What alternative quotes did you get and what differentials in their proposed prices were there?
5. How much have you spent on Boudicca’s services? Why do you think this is a good use of shareholders’ funds?

Readers may wish to also read my previous blog on Ventus, where I made the following points:

• If you cannot attend the AGM, nor appoint a trusted proxy, then ShareSoc recommend you vote against the re-election of the existing directors and vote for the new slate of directors. The main reasons why (at this stage) we have formed this view are:
  • The existing directors re-negotiated the contract with the investment manager in 2017 and the terms were too generous, in respect of
    1. The management fee, which is only reduced to 2.00% in y/e 28 Feb 2023;
    2. The 20% performance fee was unchanged; and
    3. The 2 year notice period.
  • The new proposal, which the Ventus Directors say was initiated before the resolutions were requisitioned, is still too generous – not only in terms of the management fees, but also the 20% performance fee is unchanged, and this is despite the proposal to merge the 3 separate classes of shares; and the 2 year notice period will be increased to three years, from 8 Aug 2019, reducing to only two years after 8 Aug 2020.
  • It would be better to defer this proposal and negotiate a better deal. However, the only way to do this is to vote to remove the existing directors and appoint the ones proposed by the Requisitioners.

I have also been directed to read the Lemon Fool and ADVFN bulletin boards, on which I found many contributors with similar views to my own and many other interesting points, including this one:

Ventus is not one of the VCTs which I hold, and I’ll also confess that I rarely vote at VCT AGMs, although I’m a certificated shareholder in many VCTs. However if the board of one of the VCTs which I hold felt the need to employ Boudicca to whip up the vote for a Board policy, I’m pretty certain I would vote in opposition. I suspect I’m not alone in such a view, and I’m surprised that the Ventus boards are not aware of this possibility. It somewhat smacks of desperation on their part.

See https://www.lemonfool.co.uk/viewtopic.php?f=25&t=113&hilit=Ventus&start=60 and

https://uk.advfn.com/stock-market/london/ventus-vct-VEN/share-chat

Cliff Weight Declaration: I am a shareholder in Ventus VCT. The above are my personal views.

19 July 2019