A UK investment trust is planning to tear up its performance fee structure after dishing out a £60mn payday to managers last year, just before its valuation plunged following the brutal sell-off in growth stocks.
The value of Chrysalis Investment Trust has nosedived 57 per cent over the past 12 months on a total return basis, according to data from the Association of Investment Companies.
The £1.2bn trust on Thursday said it was planning to overhaul the arrangements for extra fees it pays based on the performance of its portfolio, which is focused on private tech companies, after backing from large shareholders.
Shareholders said there were “shortcomings” in the fee arrangements after the trust canvassed their views as part of a review launched this year. The new fee structure should be in place for the next financial year starting this October, the trust said.
The trust had paid a total of £117mn in performance and management fees, including £60mn to its managers in company stock, for its financial year ending last September.
The fees were based on a 20 per cent share of the company’s returns in net asset value terms above certain benchmark levels, similar to fees for private equity managers.
They were split between trust managers and Jupiter Asset Management, the investment group that overall manages the company.
Jupiter said last year’s fees reflect “the significant value that has been created for shareholders by the investment management team”, but it supports the trusts efforts to ensure “continued alignment with the company’s shareholders”.
Chrysalis’ board said it is now negotiating details of the new fees with Jupiter.
The group invests heavily in growth stocks such as fintech groups Klarna and Starling Bank. Many of these bets soured as money for start-up fundraisings dried up.
“With much more difficult funding markets now upon us, our long-term focus is on helping our portfolio companies to weather the storm, and allow them to emerge in the best possible shape,” the trust’s managers Nick Williamson and Richard Watts said as the company announced results for the six months to the end of March.
About 60 per cent its portfolio companies have yet to turn a profit, although on average these start-ups have enough cash to see them through the next 14 months, the trust said.
The trust’s managers said they have urged unprofitable companies to curb their spending and focus on breaking even, given the uncertainty about when it will become easier for start-ups to raise fresh cash again.
“These are difficult conversations for founders, who have been used to a growth-focused environment,” the trust’s managers said.
Chrysalis launched in 2018 with a focus on investing in disruptive companies before they go public and chalked up a strong run of performance after backing standout tech companies, such as money transfer group Wise.
It benefited from the boom in growth stocks during the economic rebound from Covid-19 last year, which trickled down to the valuations of its unquoted holdings as investors were eager to back tech stars at often lofty valuations.
The company had announced in June it would set up a new independent committee to scrutinise valuations following pressure to ensure their accuracy.
