Electra Private Equity will bring all executive and investment functions back in-house as of June 2017, according to a statement on the London-listed private equity trust’s website.
Following “Phase I” of an internal review, announced on 25 January 2016, Electra has decided the services of Electra Partners, its investment manager, will not be retained past 31 May 2017. The trust served notice of termination on Electra Partners on 26 May 2016, as reported by Private Equity International.
Electra said it is developing internal resources to assume all operating responsibilities, and intends to migrate from a listed investment trust to a “corporate” structure, a move it believes could result in recurring expense savings of more than £25 million (€28 million; $31 million) per annum and a reduction of share price discounts to the portfolio’s underlying value.
Returning control to Electra’s board will eliminate carried interest on investments made after June 2017. Carried interest for the last 12 months totalled £80 million, the trust said.
Electra said it would also shortly begin the process for an initial £200 million return of capital to shareholders through a tender offer.
“This return of capital will require shareholder approval and is a first step to improving the Company’s capital allocation policy,” it said.
“Phase II” of the review – a review of the portfolio – will begin in June 2017, after the termination of the relationship with Electra Partners, or earlier if Electra Partners agrees to grant access to the portfolio companies’ financial information and management teams.
The second phase will include a “detailed operating review” of the portfolio companies, establishing the new capital allocation policy, and “implementing a compensation plan to align management interests with the return on shareholders’ capital”.
“I believe that by returning control of all functions to the Board we will put in place a more effective, transparent corporate governance structure. A much lower-cost executive team, fully accountable to the Board and shareholders, will then pursue a strategy of portfolio company improvement and value enhancement, creating maximum value for our shareholders,” Electra Private Equity chairman Neil Johnson said in the statement.
“We believe that it is important that we move investment management responsibilities to the Board, in line with the new strategic direction of the Company, to adopt a corporate structure with more typical financial reporting and transparency.”
The review was initiated after Edward Bramson and Ian Brindle were appointed to the board following a contentious shareholder vote on their nominations in November 2015. The pair represent the listed investment trust’s largest shareholder Sherborne Investors with an almost 30 percent stake.
In May Electra’s board also appointed Bramson to a newly-created role of interim chief executive officer as part of a newly-formed executive team that will provide “administrative and analytical support in relation to the review process”, the company said.
In July the trust hired Thomas Cook executive Gavin Manson as its first ever chief financial officer.
As at 11:00 BST Electra Private Equity shares were trading up 1.42 percent at £42.80 per share, giving the firm a market capitalisation of £1.7 billion.