Edinburgh investment trust, the £1bn UK Growth and Income vehicle, is offering the first performance fees in its 150-year-history as Neil Woodford becomes lead manager.
The Invesco Perpetual star manager takes over the trust after six years of Fidelity management.
Under the agreement, Invesco Perpetual will be paid a management fee and a performance fee.
Management fees will be 0.6% of the market cap of the fund - currently equivalent to about 0.45% of total assets.
The trust and Invesco Perpetual have also agreed a target that the NAV (with debt at par) should outperform the FTSE All-Share Index (Total Return) by 1.25% per annum on a three year rolling basis.
If this target is achieved, Invesco will additionally receive a performance fee of 15% of the amount of the above-target outperformance, up to a maximum of 1% of net assets in any one year.
Scott Dobbie, chairman of the trust, comments: “The trust decided to introduce performance fees as this means it will pay the managers less on the fixed part of the fees and they will only be paid if they perform. The trust was run with low costs which will not suddenly by increased. It is also not a bad thing for managers and shareholders to be in the same situation.”
As a result of the changes, the TER of the trust could increase from a low 40bp to around 60bp with performance fees on top.
Previous managers on the tust were Fidelity’s Sam Morse on the growth side and John Stavis on the income side.
However, performance had been poor in recent times with the NAV down 16.9% over the year, according to Trustnet, compared to a fall of 12.1% for the FTSE All-Share. Over three years, the trust returned 13.1% compared to 13.0 for the All-Share.
In June, Fidelity announced it was considering a range of options for the income portion of the trust but these did not meet with the approval of the Edinburgh Board and Fidelity resigned. A beauty parade was held for a new manager for the trust which Woodford won.
The Edinburgh Board said it will try to ensure shareholders whose interests are held through savings plans, including PEPs and ISAs, will suffer minimum disruption through the change of manager. They will be notified in due course of any alternative administrative arrangements.IFAonline
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