UK investment trust Chrysalis has torn up its fee structure after coming under fire last year for awarding outsized payouts to its managers just before a market rout slashed the value of its investments in unlisted growth stocks.
The trust, which focuses on investing in unlisted “unicorn” companies, paid out £117mn in performance and management fees in late 2021, shortly before the value of its investments plummeted as markets turned in 2022.
Chrysalis managers took home £60mn, which they elected to take in stock, while the rest of the award went to owner Jupiter Fund Management, with the 20 per cent fee more in line with private equity pay outs than those at most investment trusts.
After pressure from investors, the trust said on Wednesday that it would drop its overall performance fee from 20 per cent to 12.5 per cent of net asset values above certain benchmarks, with all awards to be made to the management team in shares. Fees will only be payable to Chrysalis’ managers, as opposed to the previous structure which also awarded Jupiter.
“This is an attempt to draw alignment more to the share price,” Andrew Haining, the trust’s chair, told the Financial Times. “Jupiter central has waived its right to any future share in performance fees . . . the resultant smaller performance fee is designed to be for incentivising and retaining the management team.”
Richard Watts and Nick Williamson, managers of the London listed trust, have bet heavily on growth stocks such as fintech groups Klarna and Starling, which have been hit hard by inflation and interest rate rises. In the second quarter of this year, buy now, pay later provider Klarna’s most recent valuation dropped around 85 per cent from its peak.
Chrysalis’ new fees remain high compared to other trusts — Baillie Gifford’s Scottish Mortgage trust charges no performance fees, for example — but the company’s leadership says it is trying to balance shareholder expectations with the need to retain talent with the experience to invest in unlisted, private equity-like structures.
“There are very few trusts that compare to us . . . Private equity managers are looking at how to bring down the entry barrier for investors to be able to come into these funds because the private capital market is growing so quickly,” Haining said.
All awards will be made in shares, with a quarter to be issued at the time of the award and the remaining 75 per cent deferred for between 3 to 5 years, dependent on the clearing share price performance hurdles.
The trust’s shares are currently trading at an over 50 per cent discount to the value of its underlying investments. No further payouts will be made until the net asset value of the portfolio clears a high water mark of 253 pence, while the total fee will be capped at 3.75 per cent of trust’s total expense ratio for the year, the company said.
The changes still need to be approved by shareholders.