THE board of directors of the £ 671million Scottish Investment Trust, founded in 1887, have reached an agreement that will end the company’s long history as an independent, self-managed fund, a transaction which its manager says main, aroused “mixed emotions”.
The terms and conditions have been agreed by the board of directors with JPMorgan Global Growth & Income and the manager of this fund, JPMorgan Asset Management, for a combination of the assets of Scottish Investment Trust with JGGI. This deal will effectively see the assets of the venerable Edinburgh-based trust absorbed by JGGI.
Alasdair McKinnon, senior manager of Scottish Investment Trust, said yesterday in an article published on the social media platform LinkedIn: “Our announcement of a combination with JPMorgan Global Growth & Income heralds a new era for the Scottish Investment Trust.
“Of course, it brings mixed emotions. The self-directed investment trust model was created in the 19th century and we were almost unique in maintaining that model. Over the past several years, we have attempted to preserve the best elements of this model while making the essential changes to ensure the company’s relevance for the modern age. However, the best option now is for the company to adopt a more conventional structure.
All shareholders of Scottish Investment Trust, which employs 10 people, will receive new shares of JGGI under the terms of the agreement, which was announced yesterday. The Scottish trust house at 6 Albyn Place, which is valued in the accounts at £ 2.025million, will be sold.
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Scottish Investment Trust, which said it received a “large number” of proposals after inviting them in June, declined to comment when asked if its employees would be laid off if the deal with JGGI goes through.
Describing the structure of the transaction, which is subject to shareholder approval, the Scottish trust said: the company. ”
Scottish Investment Trust shares jumped more than eight percent yesterday, closing 62p higher at 815p.
The trust announced in June that it was seeking proposals from outside asset managers after a five-year period in which it underperformed a key global equity index.
Scottish Investment Trust noted yesterday that at Monday’s close, shares of JGGI were valued at a premium of 2.7% to net asset value.
He added: “In contrast, SCIN (Scottish Investment Trust) shares traded at an average discount to net asset value … of 10.4% in the three months prior to the announcement of the strategic review of the society.”
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James Will, Chairman of Scottish Investment Trust, said: “The Board of Directors undertook a long and rigorous review process and considered a wide range of options for the company. Ultimately, the proposal to combine The Scottish Investment Trust with JPMorgan Global Growth & Income was seen as the most compelling outcome for shareholders, allowing the creation of a company with a broadened net asset base of over 1.2 billion pounds.
He added, “Our two companies were both launched in 1887, and this combination will reflect their two proud histories in a single vehicle relevant to today’s investment market. JGGI offers a style independent total return approach that has outperformed the index and distributes an attractive dividend level to investors. The Board of Directors would like to express its deep gratitude for the dedication and professionalism of the employees of The Scottish Investment Trust, including during the review period. ”
Mr McKinnon said on LinkedIn: “There is a cliché from business schools that all businesses have to ‘get big, nestle in or get out’. We embraced a niche because it played on our strength as a single product, self-managed company. We believed that, throughout a full investment cycle, a contrarian approach would work as well, if not better, than any other style of investing.
“Overall, our results to date have not lived up to our expectations, although the share price has shown a good increase and we have paid a good dividend. Some have argued that it is too early to tell if the time is right to make a change given that investment cycles tend to be very long. In fact, some of you have reached out to us to point out that such changes often mark the nadir of an investing style. These are great points, but the most important thing is that we do the right thing for the business. ”
Providing further details of the transaction, including plans for an agreement with an insurer for its defined benefit pension scheme, the Scottish trust said: (SIT Savings) will not be transferred to JGGI, but will remain instead of this with the liquidator, with enough assets to meet the debts of SCIN.
He added: “It is expected that members of the defined benefit pension plan, which has been closed to new members since 2015, will have their pension benefits fully secured through a buy-out and buy-back with an insurer. Sufficient capital must remain with the liquidator to ensure that this can be achieved. As part of the liquidation process, the property will be sold and SIT Savings will be liquidated. Upon completion of these processes, any excess funds remaining in the liquidation pool after all liabilities have been settled will be returned to SCIN shareholders. ”
The Edinburgh-based trust said in June that sought-after external proposals would be considered alongside current arrangements. The trust then noted that it had taken a “high conviction, contrarian global investing approach” in 2015.
Announcing the review of the agreements in June, the trust said there was “no certainty” that no changes would result, with the board noting “a strong recent performance in the near term.” However, he added: “The board of directors believed that a period of at least five years would be necessary to assess the performance of the company under this mandate. The company does not have a formal benchmark but, for comparison, the total return on the net asset value (net asset value) of the company underperformed the total return in pounds sterling of the index. MSCI All Country World during the five years ended April 30, 2021. ”
Scottish Investment Trust said yesterday: “The board has invited proposals from established fund management groups with experience in managing closed-end listed funds … for the appointment of an external third party manager; and to effect a combination with another investment trust.