Two trusts run by Brevan Howard have come under shareholder pressure to merge after investors rebelled against the hedge fund group’s plan to double its management fee.
Investec Wealth & Investment has called on the boards of BH Macro, which has a £553 million market value, and the £434 million BH Global to consider a tie-up.
Brevan Howard had demanded that the boards of the two investment vehicles accept an increase in its management fee from 1 per cent a year to 2 per cent, or else the hedge fund said it would resign as manager.
As a result of the fee rise, the trusts are bracing for an investor exodus that would shrink both vehicles and stifle their liquidity. Investec, which owns about 30 per cent of Macro as well as a smaller stake in Global, has proposed a merger as an alternative.
Brevan Howard is one of the world’s biggest “macro” hedge funds, which invests mainly in interest rate futures. The two London-listed trusts offer investors exposure to Brevan Howard funds but there is considerable overlap between their portfolios.
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While the boards of the trusts acquiesced to Brevan Howard’s demand and put its management fee increase to their shareholders, there was a backlash. Almost 34 per cent of the Global shareholders that voted rejected the fee rise last month and 17.5 per cent of Macro’s investors rebelled, although shareholders approved the increase. Colin Maltby also suddenly resigned as Macro’s chairman in February, a day before the trust said it would call an investor vote on the fee rise.
The trusts are planning tender offers for up to 40 per cent of their shares, to allow unhappy investors who do not want to pay the fees to exit the vehicles. However, Investec wants the trusts to explore a merger before the tender offer gets under way.
Macro described a tie-up as “a positive suggestion” and said Brevan Howard was supportive of talks taking place.
Global was less welcoming and said: “While the board is aware of the potential advantages of a larger, single company, it also recognises that its largest shareholders have to date either voiced continuing support for a vehicle specifically designed to invest in the Brevan Howard Multi-Strategy Fund or at the very least shown no strong desire for a combination of the two companies to be effected.”
Christopher Brown, an analyst at JP Morgan, said Global’s relationship with Brevan Howard was likely to be “more strained”. Unlike Macro, Global’s chairman has stayed in place and a higher proportion of its shareholders rejected the fee increase.
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Shares in BH Macro closed down 10p, or 0.3 per cent, at £33.10. BH Global fell 20p, or 1 per cent, to £19.30.
