Conversus lowers management fees by 20%

The publicly listed fund of funds halted investments in April, and has reduced management fees until it returns to growth mode.

Euronext-listed Conversus Capital has reduced the management fees it pays to its parent company, Conversus Asset Management.

Previously, the listed fund of funds charged a 1 percent management fee on invested capital, a 50 basis point fee on uninvested capital, and a 10 percent performance fee. The 1 percent fee and the 50 basis point fee have both been reduced by 20 percent, while the 10 percent carry remains the same. This reduction is effective retroactively to 1 July 2009. The listed vehicle estimates that it will save $4.3 million annually from the reduction.

The decision to change the fees was driven by “the knowledge of all the parties that things have changed fundamentally”, said Tim Smith, chief financial officer of Conversus.

“In the two years since our IPO, things have changed dramatically, not just with the realisation strategy, but the stock price has dropped off quite a bit, and the markets have fundamentally changed,” Smith said. “From a shareholder perspective, with the structure we have in place, we quickly came to the understanding that something had to be done.”

At the end of April 2009, Conversus said it would discontinue substantially all investments and new commitments to focus on “realising the value of the existing portfolio by applying cash flow to fund capital calls and expenses, repay debt and, eventually, return capital to unit holders through unit repurchases and cash distributions”.

Since the fund decided to move to a realisation strategy, the fund and its management company have been working to decide how much to lower fees to reflect the management company’s new responsibilities, Smith said.

Conversus’s largest shareholders – Bank of America Merrill Lynch and Oak Hill Investment Management, the California Public Employees' Retirement System and Harvard Management Company – are also the owners of its management company. All of them support the changes, Smith said.

The fund will return to growth mode if its share price moves closer to NAV, and the fund’s trading volume increases to the point where investors are afforded “sufficient liquidity”. When this occurs, the fees will return to their previous levels.