REG - European Inv Tst Plc - Change of Investment Manager

Baillie Gifford European Growth TrustAnnouncement

10/10/2019 07:05

RNS Number : 3663P
European Investment Trust PLC (The)
10 October 2019
 


10 October 2019
This announcement contains inside information for the purposes of Article 7 of the Market Abuse Regulation (EU) No 596/2014. This announcement has been authorised for release by the Company's Board of Directors.
The European Investment Trust plc
Change of Investment Manager
The Board of The European Investment Trust plc (the "Company") is pleased to announce that, after an extensive review of the Company's management arrangements, it has entered into heads of terms to appoint Baillie Gifford & Co Limited ("BGCL") as the Company's new AIFM, company secretary and administrator.
BGCL intends to delegate portfolio management functions to Baillie Gifford & Co (together with BGCL, "Baillie Gifford"). The appointment of Baillie Gifford on the terms set out in the heads of terms is conditional on the execution of a new investment management agreement and obtaining the necessary regulatory clearances for BGCL to be appointed as the Company's AIFM. The Company has given notice to terminate the appointment of Edinburgh Partners AIFM Limited ("Edinburgh Partners") as the Company's AIFM, company secretary and administrator.
The Board notes that the Company's investment performance has lagged its benchmark (the FTSE All-World Europe ex UK Index) since the appointment of Edinburgh Partners on 1 February 2010, and over the three and five years, to 30 September 2019. In addition, it has lagged the MSCI Europe ex UK Value Index, which more closely reflects Edinburgh Partners' value investment style, over three and five years. Further, the Company's share price has experienced a persistent and wide discount to its net asset value per share, notwithstanding the use of share buybacks. Accordingly, the Board has concluded that, in order to provide an improved investment outcome for existing investors and to position the Company to attract new investors, it should make the change to introduce a new investment approach managed by Baillie Gifford, an established manager of investment trusts with a long-term track record in achieving capital growth from European equities.
 
The Company's investment objective will change, targeting investment returns primarily from capital growth. The investment policy will be amended, with Baillie Gifford realigning the portfolio to invest in European growth companies, with typically between 30 to 50 stocks in the portfolio (up to a maximum of 60 positions) and with a minimum market capitalisation of approximately €500 million. It is intended that the portfolio will, over time, potentially include unlisted investments, up to in aggregate 10% of the value of the portfolio (measured at the time of acquisition). Under the Company's current borrowing policy, the level of gearing should not exceed 20% of net assets in normal market conditions. It is intended to amend the borrowing policy to exclude unlisted investments from net assets in the calculation. Shareholders will be asked to approve the changes to the Company's investment policy at the Annual General Meeting (the "AGM") to be held on 23 January 2020. The Company expects to declare and pay a final dividend for the year to 30 September 2019 and, thereafter, it is expected that the Company's policy will be to pay dividends annually and only to the extent needed for the Company to maintain its investment trust status.
 
The Company's portfolio will be co-managed by Stephen Paice and Moritz Sitte. Stephen has co-managed the Baillie Gifford European Fund since 2011 and Moritz has co-managed it since 2014. The co-managers will seek to select high quality companies with strong competitive positions which they believe have the prospect of delivering strong earnings growth over a number of years. Baillie Gifford believes that companies providing a combination of revenue growth, margin expansion and reinvestment of surplus cash flows at attractive rates of return, offer the best chance of outperforming over long periods of time.
The Board believes that the change in manager and investment approach will provide the following benefits to investors:
·      Access to Baillie Gifford's European Equity Team. The team is experienced and well resourced. The team managed European assets of approximately £3 billion as at 30 June 2019 and works closely with Baillie Gifford's global and international investment managers. In aggregate, Baillie Gifford managed a total of approximately £44 billion of European investments as at 30 June 2019.
·      Strong track record. Over the three, five and ten years to 30 September 2019, the Baillie Gifford European Fund (B Accumulation share class in sterling) delivered cumulative total returns of 32.2%, 82.3% and 195.4%, respectively. Over the same periods, the FTSE All-World Europe ex UK Index delivered total returns of 33.1%, 59.3% and 114.6% respectively. The Baillie Gifford European Fund is a top decile performing fund over five and ten years in the Investment Association's Europe Excluding UK sector.
·      High conviction stock selection. Baillie Gifford expects active share for the portfolio to be typically over 90%.
·      Utilising the closed-ended structure. Subject to shareholder approval, up to 10% of the value of the portfolio (measured at the time of acquisition) may be invested in unlisted investments. The portfolio will also have a multi-market capitalisation bias, with the closed-ended structure better suited to investment in some smaller, less liquid stocks than currently held in the Baillie Gifford European Fund.
·      Support and commitment of leading closed-end fund management house. Baillie Gifford is the largest investment trust manager in the UK by assets and currently manages nine investment trusts, and one investment company, with total assets of approximately £13.7 billion as at 30 June 2019.
It is the Board's view, after consultation with its largest shareholders and advisers, that these changes provide the scope for improved long-term performance and should enhance the appeal of the Company. With the support of Baillie Gifford, the aim will be to attract new investors and, over time, seek to achieve a narrowing of the Company's discount.
Expected Timing
As set out above, Baillie Gifford's appointment will only become effective upon the satisfaction of certain conditions. These are expected to be completed no later than the expiry of the three month notice of termination served on Edinburgh Partners.
Change of name, ticker and registered office
Upon Baillie Gifford's appointment becoming effective, applications shall be made to change the Company's name and ticker to "Baillie Gifford European Growth Trust plc" and "BGEU", respectively, and its registered office address so as to take effect as soon as reasonably practicable.
Baillie Gifford
Baillie Gifford had assets under management and advice of approximately £207 billion as at 30 June 2019. Baillie Gifford was founded in 1908 since which time it has remained privately owned and today it is one of the leading investment management firms in the UK, with 43 partners and a staff of around 1,200.
Stephen Paice and Moritz Sitte will act as co-managers of the Company's portfolio.
Stephen Paice
Stephen is Head of the European Equity Team and a member of the Global Stewardship Portfolio Construction Group. He joined Baillie Gifford in 2005 and spent time in the US, UK Smaller Companies and Japanese Equities Teams before joining the European Team in 2010. Stephen graduated BSc (Hons) in Financial Mathematics in 2005 from Glasgow Caledonian University.
Moritz Sitte
Moritz joined Baillie Gifford in September 2010 and is an Investment Manager in the European Equity Team. He graduated BSc in Business Administration from the University of Regensburg, Germany in 2009 where he took part in the Honours Elite Degree Programme. Moritz then went on to complete an MSc in Finance and Investment at the University of Edinburgh in 2010.
Fees and transition costs
As set out in the heads of terms signed by the Company and Baillie Gifford, Baillie Gifford will be paid an annual management fee of 0.55% of the lower of (i) the Company's market capitalisation and (ii) the Company's net asset value (which shall include income), in either case up to £500 million; and 0.50% of the amount of the lower of the Company's market capitalisation or net asset value above £500 million.
In order to offset any payment to the existing AIFM in respect of the termination of its appointment and to contribute towards the other costs of implementing the proposals set out in the heads of terms (including portfolio transition costs), Baillie Gifford has agreed to waive the management fee payable to it for the aggregate period of six months from its appointment as AIFM.
Baillie Gifford will also contribute £100,000 in relation to the Company's approximate contribution to the marketing programme undertaken by Baillie Gifford for all of its managed investment trusts (for the period to 31 December 2020) and has committed to directly spending a minimum of £100,000 on marketing the Company during this period. The Company shall bear all the remaining costs associated with the proposals.
The investment management agreement shall be terminable by either party serving three months' notice.
Tender Offer
Following discussion with the Company's largest shareholders, in connection with the appointment of Baillie Gifford the Company will propose a tender offer for 10% of its ordinary shares in issue at that time and at a 2% discount to the prevailing cum income net asset value per ordinary share. The tender offer will require shareholder approval and it is proposed that the relevant authority will be sought at the Company's AGM in January 2020.
The Board believes that improved investment performance, combined with increased marketing activity, will be the most effective way to narrow the discount that the Company's shares have traded at to their net asset value.
Change to the Company's Board of Directors
Sue Inglis has informed the Company that, owing to her position as Senior Independent Director of  Baillie Gifford US Growth Trust plc, she will step down from the Board of the Company prior to Baillie Gifford's appointment becoming effective. She recused herself from the Board's decision to appoint Baillie Gifford as AIFM to the Company. It is the Board's current intention to appoint a Director to replace Ms. Inglis.
Michael MacPhee, Chairman, commented:
"The Board is delighted to announce its intention to appoint Baillie Gifford. Baillie Gifford offers a compelling investment process with a proven record of long-term returns, a successful team well-aligned with shareholders and a breadth and depth of supporting in-house resources. We feel this gives us the best combination of factors to deliver an attractive and distinctive investment proposition, improve liquidity, lower the discount and do the best job we can for existing and future shareholders."
 
Past performance cannot be relied on as a guide to future performance.
The Company's Legal Entity Identifier is: 213800QNN9EHZ4SC1R12
For further information please contact:



The European Investment Trust plc
Michael MacPhee (Chairman)
(via Peel Hunt below)
 
Peel Hunt LLP
Luke Simpson / Liz Yong (Corporate Broking)
Mark Thompson (Sales)

Tel:+44 020 7418 8900
 




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