ACORN INCOME FUND LIMITED
(a closed-ended investment company incorporated in
Guernsey with registration number 34778)
LEI 213800UAZN7G46AHQM67
17 May
2021
Acorn Income Fund
Limited
Proposed Change of
Investment Objective, Policy and Manager
The Board of Acorn Income Fund Limited (the "Company") is
pleased to confirm that it has concluded its previously announced
strategic review and, having received strong interest from a number
of high quality managers, is proposing to recommend the appointment
of BMO Global Asset Management (“BMO”) to manage the Company, and
the adoption of a new Investment Objective and Policy which the
Board believes will position the Company for success in the years
ahead and deliver long-term value for shareholders.
Using its Sustainable Global Equity Income investment strategy,
BMO will manage the Company by investing principally in a global
portfolio of publicly listed companies that offer an attractive
level of income and make a positive impact on society and the
environment.
The Board believes that the proposed change in investment
manager and the adoption of the Sustainable Global Equity Income
investment strategy are in the best interests of shareholders and
will position the Company for a more sustainable, long-term
future.
The strategy will seek a balance between growth and income by
taking advantage of one of the most exciting and fastest growing
investment opportunities in the market today: investing in
companies that are expected to benefit commercially by proactively
addressing long-term sustainability issues. Importantly, the
proposals will also set the Company’s revenue and dividends on a
more sustainable path.
These proposed changes in investment strategy will be set out in
more detail in a circular to the Company’s shareholders and an
extraordinary general meeting (the “EGM”) will be called at which
shareholders will be able to vote on the proposals ahead of the
five yearly discontinuation vote at the AGM in August.
Nigel Ward, Chairman said:
“The strategic review has been a lengthy and extensive process
driven by the long-term interests of the Company’s shareholders.
The Company has reached a natural juncture ahead of the
discontinuation vote in August and the Board has concluded that
maintaining the status quo will not remove the historical
challenges of scale and liquidity it is facing.
“Against this backdrop, I am confident that the proposals the
Board intends to recommend to shareholders at the EGM will lay the
foundation for a successful long-term future by enabling the
Company to benefit from a global investment mandate positioned to
take advantage of the outstanding opportunities offered by
sustainable investing.
“In putting forward the recommendations the Board’s view is that
the choice for shareholders is clear and simple: a vote for the new
investment Objective and Policy should be made in combination with
a vote against discontinuation.
“BMO’s leadership in responsible investing and its investment
trust track record stood out amongst a field of high-quality
managers and is uniquely placed to take the Company on the next
stage of its journey by delivering shareholder value through
sustainable growth and income. I sincerely trust that shareholders
will feel confident and enthused to support the Company not only at
the forthcoming general meetings but also in the years to
come.”
Benefits of the proposals
The Board believes that the proposed change of Investment
Objective and Policy and manager is in the best interests of
shareholders and will have the following benefits for
shareholders;
- Making a positive environmental and societal impact: The
Company’s proposed investment strategy will target publicly listed
companies globally, whose products and services contribute directly
to addressing sustainability challenges such as climate change and
ageing populations, and as a result make a positive impact on the
environment and society. The Board believes this strategy is
increasingly relevant to a very wide range of investors as well as
providing the potential for strong long-term growth.
- Attractive return profile: The strategy will offer an
attractive risk/reward profile for the yield seeker with a balanced
approach between growth and income. The initial portfolio
yield is expected to be circa 3.5%.
- Aligns investment with values: The strategy will be
ideal for individuals wanting to align their investments to their
values, while still benefiting from an attractive level of income
and potential for long term capital growth.
- Reduced management fees and fixed costs: The management
fee will fall from 0.7% on the gross assets of the Company to 0.65%
on the net assets of the Company and the performance fee is removed
entirely. Other operational cost savings are expected, including no
additional fees associated with investment research or AIFM
services. Furthermore, BMO’s management fee will be waived for the
first six months of appointment.
- BMO’s leading ESG and investment trust track record: BMO
Global Asset Management is recognised as one of the original
pioneers, and has one of the longest track records, in responsible
investing. Combining this with its experience managing a range of
investment trusts, across different geographic mandates and asset
classes, sets it apart from its peers.
- Engaging companies to improve is a key pillar of BMO’s
sustainable philosophy: Investing sustainably is no longer
about looking at Environmental, Social and Governance factors from
the single prism of managing risks, and limiting the downside, but
about also driving the upside. The sustainability risks and
challenges the world faces ultimately underpin significant
long-term growth opportunities for those companies addressing
them.
- Change of Investment Objective and Policy and
Discontinuation vote: In the upcoming general meetings,
shareholders will have the opportunity to vote on resolutions for
the change of Investment Objective and Policy and for
discontinuation of the Company. The Board intends to recommend
shareholders vote in favour of the change of Investment Objective
and Policy and against the Discontinuation Vote.
Background and Rationale
During Q4 2020, the Board initiated a strategic review of the
Company with the intention of presenting proposals for shareholders
to consider in light of the Discontinuation Vote at the upcoming
Annual General Meeting in August
2021. The strategic review predominantly focussed on:
- A fundamental review of the Company’s structure and investment
mandate and its relevance to investors;
- Stabilising and putting the Company’s revenue account and
dividend policy on a sustainable long-term footing while
maintaining an income focus in the investment objectives;
- Setting the Company on a path to growth and hence improved
liquidity and a lower expense ratio by broadening the appeal of the
investment mandate to a wider range of investors; and
- Operational cost savings through both management fee savings
and other fixed cost savings.
The Board has concluded that the current arrangements will not
deliver a product with wide appeal to investors and that
maintaining the status quo will leave the Company facing the same
problems of scale and liquidity that have challenged it in recent
years. BMO’s proposed investment strategy recognises the new
commercial opportunities arising from technological advances and
the increased awareness of the need to adopt sustainable practices.
This provides the potential to generate attractive investment
returns through both dividends and capital appreciation in the
years ahead and in the Board’s view is more aligned to
shareholders’ interests and much better meets the objectives of a
broader range of investors. In addition, BMO has proposed a fee
package and scope of service, described above, that answers the
Board’s concerns in relation to operational costs. The Board
believes that this strategy and the proposed fee structure will
meet all of the objectives of its strategic review.
As material changes to the formal structure of the relationship
with the Investment Advisers and Investment Manager were one
possible outcome of the strategic review, as previously announced,
the Company has served protective notice to terminate the existing
Investment Management Agreement.
Change of Investment Objective and
Policy
It is proposed that, subject to shareholder and regulatory
approvals, the Company's investment objective be changed to achieve
long term capital growth and an attractive and growing dividend
yield by investing principally in a portfolio of publicly listed
global companies that make a positive impact on society and the
environment. The detailed investment policy will be set out in the
circular following its approval by the FCA.
The proposed Global Sustainable Equity Income strategy aims to
address a growing need in a clearly under-served area of the
market, and will leverage the same philosophy and process of the
award-winning teams within BMO behind the successful Responsible
and Sustainable Development Goals Engagement strategies. The
strategy will invest in a diversified global portfolio of 30 to 50
high quality, cash generative companies that are in complete
alignment with the positive sustainability themes identified within
the UN Sustainable Development Goals. The strategy will also aim to
deliver an attractive level of income to shareholders. The initial
portfolio yield is expected to be circa 3.5%.
Change of Investment Manager
The Company is proposing to appoint BMO as the Company's new
Investment Manager and AIFM. The appointment of BMO is conditional
upon the satisfaction of a number of conditions, including: (i) the
Company’s Discontinuation Vote failing (i.e. the Company
continuing) at the upcoming Annual General Meeting; (ii) the
proposed Investment Objective and Policy being approved by
shareholders at the upcoming Extraordinary General Meeting; (iii)
the execution of a new investment management agreement; and (iv)
obtaining the necessary regulatory clearances.
BMO is a diverse investment business with approximately
£227bn[1] in assets under management and is recognised as one of
the original pioneers of Responsible Investment, having launched
Europe's first ethical fund over
35 years ago. Today the business manages approximately £8.3bn[2] in
responsible funds and mandates and has a team of over 20 dedicated
responsible investment experts, with over 275 years of combined
experience.
The portfolio will be managed by Sacha
El Khoury, with Nick
Henderson as the named alternative. Both are members of
BMO’s Responsible Global Equities team, with Sacha having joined
BMO in 2009, and Nick in 2008.
Sacha El Khoury is a Portfolio
Manager within the Global Equities team, Lead Portfolio Manager on
the BMO Sustainable Opportunities European Equity Fund, and
Alternate Portfolio Manager on the BMO Sustainable Opportunities
Global Equity Fund. Sacha graduated with an MSc in Finance (with
distinction) from City University, Cass Business School in 2009 and
a BA in Economics (with a minor in Business Administration) from
the American University of Beirut in
2007. Sacha is a CFA Charterholder.
Nick Henderson is a Portfolio
Manager within the Global Equities team, Lead Portfolio Manager on
the Sustainable Opportunities Global Equity Fund, winner of the
2019 Money Observer Best Global Growth Smaller Fund Award,
Alternate Portfolio Manager of the BMO Responsible Global Equity
Fund, the BMO SDG Engagement Global Equity Fund, and the BMO
Sustainable Opportunities European Equity Fund. Prior to joining
the firm, Nick graduated with a Bachelor of Science degree in
Economics from the University of Bristol; he is a CFA
Charterholder.
Dividend Policy
The Company’s current dividend policy is to provide Ordinary
Shareholders with a high income relative to the average dividend
yield of the UK Smaller Companies comprised in the Numis Smaller
Companies Index ex Investment Companies, via quarterly dividends.
The Board has already announced its intention to utilise revenue
reserves to maintain the second quarterly dividend payments due to
be paid in June 2021 at the same
level as the corresponding quarterly dividends for the year ended
31 December 2020, but has noted that
a return to a sustainable and covered dividend will necessitate a
lower dividend payment in future years. Further details on the
proposed level of future dividends and gearing under the new
arrangements will be contained in the Shareholder Circular, which
is expected to be published in July
2021.
Fees
The proposed change of Manager to BMO would result in a
reduction in management fees from the current level of 0.7% on
gross assets to 0.65% on the net assets of the Company. There would
be no performance fee, nor additional fees associated with
investment research or AIFM services. Furthermore, BMO’s management
fee would be waived for the first six months of appointment.
Change of name
The Board proposes to change the name of the Company to BMO
Global Sustainable Equity Income Fund Limited. The change of name
is expected to become effective around the time of BMO's
appointment. Shareholders will be asked to approve the proposed
name change, which would also be conditional on the proposed
investment objective and policy being approved by shareholders.
Expected Timing
The proposals are subject to shareholder and regulatory
approvals. A circular with further details of the proposals,
including a notice convening the Extraordinary and Annual General
Meetings, both to be held in August
2021, is expected to be published in July 2021. The implementation of the new
Investment Objective and Policy and management arrangements is
expected following the Company’s AGM.
As part of the review process, the Board received a number of
very high quality proposals and would like to express its thanks to
all those who participated and to its advisers, N+1 Singer.
The Board would also like to thank its Investment Advisers and
Investment Manager for their commitment and services, including
Claire Long, Chun Lee and Robin
Willis from Premier Asset Management and Simon Moon and Fraser
Mackersie from Unicorn Asset Management.
For information please contact:
Nigel Ward – Chairman via N+1
Singer and FTI Consulting
N+1 Singer – Corporate Broker
Alan
Ray
020 7436 3060
Alaina
Wong
020 7436 3129
FTI Consulting – PR Adviser
Edward Berry
07703330199
Tom
O’Brien
07929021492
This announcement contains inside information for the purposes
of Article 7 of the Market Abuse Regulation (EU) No 596/2014. This
announcement has been authorised for release by the Company's Board
of Directors.
[1] as at 31 December 2020
[2] as at 31 December 2020