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Lindsell Train trust moves to fix performance fee ‘anomaly’

Nick Train

The £346.6m Lindsell Train investment trust plans to change how its performance fee is calculated to fix an “anomaly” it has flagged up to shareholders.

The trust, which is managed Nick Train, saw its share price rise 32.9 per cent and its net asset value total return per share increase 27.2 per cent in the 12 months to 31 March 2013, against a 3.8 per cent gain in its benchmark.

Chairman Donald Adamson says: “This performance has come with a consequence – the accrual of a material performance fee for the manager. It amounts to £1.7m, or 3 per cent of NAV, which when added to the regular cost of running the company (1.1 per cent of NAV) makes a high ongoing charge for this year.”

The Lindsell Train investment trust’s performance fee is calculated on its market capitalisation rather than its NAV – a policy intended to favour shareholders, as at the time it was established, many trusts traded at discount to NAV. While most of the fee rewards the manager’s performance, part can be attributed to the share price premium widening relative to net assets.

Adamson adds: “The managers drew attention to this anomaly in their September 2012 monthly report and in it discouraged new shareholders from paying too high a premium when buying shares. Although the extent of the premium has moderated somewhat from its peak, it still remained at 6 per cent at the end of the year.”

After “detailed discussions” between the trust’s board and its manager, two concessions have been proposed to address the anomaly.

Future performance fees will be calculated on whichever is lower of the net assets or the market capitalisation. In addition, half of the performance fee just accrued that can be attributed to the expansion in the trust’s premium – which works out as £252,169 – will be withheld by the company and only paid in full if the NAV in March 2014 is higher than at the end of this year.

“The board accepts these changes with gratitude and notes that, as has been demonstrated over the course of the company’s tenure to date, the managers continue to prioritise a close alignment of interest with shareholders of the company,” Adamson says.


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