REG - Chrysalis Invs Ltd - Investment Management Arrangements Update

Chrysalis InvestmentsAnnouncement

27/11/2023 07:00

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RNS Number : 6689U  Chrysalis Investments Limited  27 November 2023

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27 November 2023

 

 

Chrysalis Investments Limited ("Chrysalis" or the "Company")

 

Investment Management Arrangements Update

 

The Board of Chrysalis has been working for some time on a significant
revision to its existing structure in order to ensure the maximisation of
value for its shareholders.

The recent shareholder consultation conducted by Rothschild & Co Equity
Markets Solutions Limited ("Rothschild") provided the Board with useful
insight into issues of capital deployment, management remuneration and
approach, as well as the Company's relationship with Jupiter Investment
Management Ltd ("Jupiter"), both as an investor in Chrysalis and as Investment
Adviser. The consultation covered approximately 60% of the non-Jupiter related
issued shares.

The purpose of the consultation was to inform the Board and Investment Adviser
of the views of shareholders ahead of a set of proposals being put to them for
approval on the date of the forthcoming Annual General Meeting ("AGM") in Q1
2024. It is the Company's intention to release relevant shareholder
documentation (including a final proposed Capital Allocation Policy) at the
same time as the year end accounts are published and the date for the AGM is
set. Shareholders will have the ability at that time to vote on:

1)    the continuation of the Company; and

2)  the revised performance fee arrangements under the proposed new
management arrangements (as described further below).

Aside from these issues, one of the key responsibilities for your Board has
been the oversight of the Company's investment management agreement.

At the time of the IPO, the investment management agreement was with Merian
Global Investors (UK) Limited ("Merian"). While the sale of Merian to Jupiter
in 2020 changed this position, the key investment staff, including the two
lead portfolio managers, Richard Watts and Nick Williamson (the "Managers"),
remained the same. After considering all the implications of a potential
change in manager, including the payment of a substantial termination fee, the
Board's unanimous conclusion was that it wished the Company to continue to be
run by the existing investment team.

Since that time, the Board has worked to ensure that the best processes are in
place for the Company, resulting in the appointment of an independent
valuation committee to enhance the quality of valuation work; the AIFM
responsibility being taken in house; and risk reporting being better tailored
to the product.

There remain, however, some outstanding issues that the Board believes need to
be resolved and which could affect the potential development of Chrysalis.
These revolve, primarily, around the provision of sufficient dedicated
resources for the management team, and the reduction of various
Jupiter-managed holdings in Chrysalis.

The Board is pleased to announce today that it has reached agreement with
Jupiter and agreed Heads of Terms with the Managers to redraw the structure
under which investment advisory services will be provided, which foresees the
Managers leaving Jupiter to provide advisory services to the Company from a
new entity.

The Board believes such a move is consistent with feedback from the recent
shareholder consultation that demonstrated strong support for the Managers and
their efforts in creating and running Chrysalis, a view which the Board
shares. While the current NAV per share remains materially below its peak,
recent events hopefully point to a more optimistic outlook, with yields
generally softening and company specific news - such as discussion around
Klarna's move towards IPO - also providing a more upbeat prognosis. Given the
Managers' in-depth knowledge of the Company's portfolio, the Board is of the
view that they are best placed to oversee the next stage of Chrysalis' growth.

The details of these arrangements will be set out in a forthcoming shareholder
circular; however, a summary of the proposed new arrangements is as follows:

1)    Chrysalis and Jupiter have agreed that the six months' notice period
under the existing management contract will be waived and the contract will
terminate with effect from 1 April 2024.

2)    Jupiter has agreed to a reduction in the management fee, effective
from 1 October 2023, from 50bps to 15bps (given likely limited investment
activity in the current market environment pending the continuation vote),
leading to an expected saving of approximately of £1.4m for Chrysalis
shareholders over the six-month period to 31 March 2024.

3)    Jupiter has released the Managers from their employment contracts and
employment restrictions, effective 31 March 2024.

4)    The Board has agreed, in principle, to enter into a tripartite
contract with a new investment adviser formed by the Managers (that will also
have as members and/or employ the existing executives who are focussed on the
Chrysalis portfolio either immediately or following the end of their notice
periods with Jupiter) to take over investment advisory services from Jupiter,
and with G10 Capital Limited - part of IQ-EQ group's UK Regulatory and AIFM
platform - to take over AIFM services for the Company, each with effect from 1
April 2024. As a consequence of this change, Richard Watts will be solely
focussed, along with Nick Williamson, on the Company's portfolio.

5)    The Company's investment advisory fee will be comprised of (i) 50bps
of net asset value per annum, which is commensurate to the level the Company
has historically paid; and (ii) an additional AIFM fee of 5bps up the first
£1 billion of net asset value per annum (3bps thereafter). The latter will
fund both the significantly enhanced risk process that is anticipated to be
established in cooperation with the Managers and the oversight of G10 Capital
Limited. As noted above, the performance fee arrangements for the new
investment adviser will be subject to shareholder approval at a meeting to be
held immediately following the AGM. The proposed performance fee terms will be
the same as those described in the Company's announcement on 13 October 2023.

6)    The new investment advisor to be led by the Managers will have a
12-month minimum initial term, following which the new agreement will be
terminable on 6 months' notice.

A further announcement will be made when this agreement is finalised and
entered into.

The new structure will allow investment in added resources for the management
team, will make the most of IQ-EQ's regulatory and AIFM platform, which is
used by a number of existing listed investment companies, and enable the
Managers to focus their time soley on developing the Company.

The Board and the Managers believe the trends that led to the establishment of
Chrysalis five years ago remain in force, especially the decline in IPO
activity and the shrinkage of the UK stock market as a venue for listed
companies. In many cases these trends have become more acute. It is also the
Board's firm belief that this complete package of proposals will put Chrysalis
in a better position to maximise the value of its exciting portfolio of
holdings and enable it to pursue the strategy into the future for
shareholders within a more transparent capital allocation policy in line with
that announced in October 2023. As such, the Board plans to recommend the
Company's continuation to shareholders at the vote on this matter at the
forthcoming AGM. In the event that shareholders were to seek an orderly return
of capital, a process which could take a number of years, the Board believes
that the Managers are best placed to provide the relevant investment advice to
the Company and that the terms of their remuneration (together with their
significant alignment by virtue of their personal shareholdings) remain
competitive with any potential alternative manager of such a strategy.

For further information, please contact:

 Media

 Montfort Communications:                        +44 (0) 7976 098 139

 Charlotte McMullen / Toto Reissland /           chrysalis@montfort.london

 Lesley Kezhu Wang

 Jupiter Asset Management:                       +44 (0) 800 561 4000

 Nick Black

 Liberum:                                        +44 (0) 20 3100 2000

 Chris Clarke / Darren Vickers / Owen Matthews

 Numis:                                          +44 (0) 20 7260 1000

 Nathan Brown / Matt Goss

 Maitland Administration (Guernsey) Limited:     +44 (0) 20 3530 3109

 Chris Bougourd

 

LEI: 213800F9SQ753JQHSW24

A copy of this announcement will be available on the Company's website
at https://www.chrysalisinvestments.co.uk.

The information contained in this announcement derived from the value of the
Company's investments has been provided by the relevant underlying portfolio
companies and has not been independently verified by the Company. The
information contained herein is unaudited.

This announcement is for information purposes only and is not an offer to
invest. All investments are subject to risk. Past performance is no guarantee
of future returns. Prospective investors are advised to seek expert legal,
financial, tax and other professional advice before making any investment
decision. The value of investments may fluctuate. Results achieved in the past
are no guarantee of future results. Neither the content of the Company's
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This announcement includes statements that are, or may be deemed to be,
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legislative or regulatory changes, changes in taxation regimes or development
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future investments.

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Rules, the Prospectus Regulation Rules made under Part VI of the FSMA or the
Financial Conduct Authority or other applicable laws, regulations or rules.

 

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