-- an incentive fee if the IRR per Ordinary Share over the
period commencing on 1 August 2006 and ending on 30 June in either
2012 or 2013 (the year to be determined by the Investment Manager)
exceeds 8 per cent. per annum, in which case the performance fee
will be 10 per cent. of the gains per Ordinary Share over the
period in excess of that IRR multiplied by the weighted average
number of Ordinary Shares in issue during that period (the
incentive fee is uncapped).
The Basic Management Fee is relatively low when compared with
the corresponding fees charged by other investment companies in the
private equity sub-sector and the Board considers that the Basic
Management Fee, without an incentive arrangement, is below the
market rate for the private equity sub-sector. Accordingly, the
Board believes that, following the expiry of the Existing Incentive
Fee, there should be a continuing incentive arrangement for the
Investment Manager for so long as it serves as the Company's
investment manager.
As the Existing Incentive Fee may expire in the near future and
the performance of the Ordinary Shares is broadly in line with the
target IRR of 8 per cent. per annum (an IRR of 7.9 per cent. per
annum per Ordinary Share over the period commencing on 1 August
2006 and ending on 31 December 2011), the Board is taking the
opportunity of the circular to Shareholders required in connection
with the other Proposals to propose that a new performance fee
replace the Existing Incentive Fee with retrospective effect from 1
January 2012.
Proposed New Performance Fee
Subject to Shareholders approving the New Performance Fee, the
Investment Manager will be entitled to a performance fee in respect
of a Performance Period if:
-- the IRR per Ordinary Share over that Performance Period,
based on the Opening NAV per Ordinary Share, the dividends paid and
other distributions made per Ordinary Share during that Performance
Period and the Closing NAV per Ordinary Share (before any accrual
for the performance fee), exceeds 8 per cent. per annum; and
-- the aggregate of the Closing NAV per Ordinary Share (before
any accrual for the performance fee) and the dividends paid and
other distributions made per Ordinary Share since the date of the
High Water Mark NAV per Ordinary Share exceeds the High Water Mark
NAV per Ordinary Share.
The performance fee will be 7.5 per cent. of the annualised
increase in the Opening NAV per Ordinary Share (calculated using
the IRR per Ordinary Share) over the relevant Performance Period
multiplied by the time-weighted average number of Ordinary Shares
in issue (but excluding, for this purpose, any Ordinary Shares held
in treasury) during the relevant Performance Period, provided that
such fee will be reduced to such amount as may be necessary to
ensure that:
-- the IRR per Ordinary Share over the relevant Performance
Period, based on the Opening NAV per Ordinary Share, dividends paid
and other distributions made per Ordinary Share during that
Performance Period and the Closing NAV per Ordinary Share (after
accruing for the performance fee), is not less than 8 per cent. per
annum; and
-- the aggregate of the Closing NAV per Ordinary Share (after
accruing for the performance fee) and the dividends paid and other
distributions made per Ordinary Share since the date of the High
Water Mark NAV per Ordinary Share is not less than the High Water
Mark NAV per Ordinary Share.
Furthermore, the aggregate basic management and performance fees
payable in respect of any financial year of the Company in relation
to the Ordinary Pool shall be capped at 2 per cent. per annum of
the average of the Ordinary Pool's NAV (before any accrual for the
performance fee) as at 31 March, 30 June, 30 September and 31
December in that financial year. A performance fee, if payable in
respect of any Performance Period, shall accrue quarterly and be
paid annually.
For the purpose of the performance fee:
-- the "Closing NAV per Ordinary Share" is the NAV per Ordinary
Share (either before any accrual for the performance fee or after
accruing for the performance fee, as the context may require) at
the end of the relevant Performance Period;
-- the "High Water Mark NAV per Ordinary Share" is the Closing
NAV per Ordinary Share (after accruing for the performance fee) at
the end of a Performance Period in respect of which a performance
fee was last paid (or, until a performance fee has been paid,
243.54p per Ordinary Share, being the audited NAV per Ordinary
Share as at 31 December 2011, the last date before the commencement
of the first Performance Period);
-- the "Opening NAV per Ordinary Share" is the NAV per Ordinary
Share immediately prior to the commencement of the relevant
Performance Period (after accruing for any performance fee payable
in respect of any Performance Period then ended); and
-- the "Performance Period" shall be the 36 month period ending
on 31 December in each year, save that the first Performance Period
shall be the 12 month period ending on 31 December 2012 and the
second Performance Period shall be the 24 month period ending on 31
December 2013.
The Directors believe that the New Performance Fee will provide
an adequate incentive for the Investment Manager, without resulting
in undue dilution of value for Ordinary Shareholders. Furthermore,
the Directors consider the maximum aggregate of the Basic
Management Fee and the New Performance Fee, being 2 per cent. per
annum of the Ordinary Pool's NAV, is well within the market norms
of the private equity sub-sector.
Shareholder Approval
The proposed New Performance Fee constitutes a related party
transaction between the Company and its Investment Manager for the
purpose of the Listing Rules. As the proposed New Performance Fee
payable to the Investment Manager in respect of any 12-month period
will be less than 5 per cent. of the Company's NAV and no other
changes are being made to the fees payable by the Group to the
Investment Manager, the Listing Rules do not require the New
Performance Fee to be approved by Ordinary Shareholders.
Nevertheless, the Directors believe that it is good corporate
governance for any new incentive fee arrangement, replacing the
Existing Incentive Fee, to be so approved. Accordingly, the
Directors have elected to comply with the Listing Rules'
requirement that certain alterations to investment management fee
arrangements be approved by an ordinary resolution passed at a
general meeting of the Company (that resolution will be proposed at
this year's AGM and only independent Ordinary Shareholders, being
Ordinary Shareholders who are neither the Investment Manager or any
other members of the F&C Group, may vote on the relevant
resolution). If the relevant resolution is passed at the AGM, the
Investment Manager will not be entitled to any payment in respect
of the Existing Incentive Fee.
General
In the event that the resolution approving the New Performance
Fee is not passed at the Company's AGM, then the Existing Incentive
Fee will remain in place until its expiry later this year or in
2013.
Cancellation of F&C Private Equity Zeros' Share Premium
Account
The Subsidiary does not currently have profits or reserves out
of which buy-backs of ZDP Shares can be funded. Accordingly, to
provide the Subsidiary with the flexibility to buy-back ZDP Shares
through the market if the Board considers such buy-backs to be in
the best interests of Shareholders as a whole, the Board is
proposing, subject to the approval of the Subsidiary's shareholders
and confirmation by the Court, that the amount standing to the
credit of the Subsidiary's share premium account (being
approximately GBP28.9 million at the date of this announcement) be
cancelled and that that amount be transferred to a newly created
special reserve which, following compliance with any Court
undertaking (or other form of creditor protection), may be treated
as a distributable reserve for all purposes. The cancellation will
take effect upon the registration with the Registrar of Companies
of the order of the Court confirming the cancellation, which is
expected to occur in September 2012.
The proposed cancellation of F&C Private Equity Zero's share
premium account requires to be approved, under the Companies Act,
by a special resolution passed at a general meeting of that
company. In addition, under the Subsidiary's Articles, the
cancellation of its share premium account and authority to make
market purchases of ZDP Shares each require to be approved by
special resolutions passed at a separate general meeting of ZDP
Shareholders. Both of these meetings have been convened for the
same date and place as the Company's AGM.
Expected Timetable
2012
Company's AGM 12 noon on Wednesday, 23 May
Ordinary Shareholders' Meeting 12.05 p.m.(1) on Wednesday, 23
May
Subsidiary's General Meeting 12.10 p.m.(2) on Wednesday, 23
May
ZDP Shareholders' Meeting 12.15 p.m.(3) on Wednesday, 23 May
Payment of final dividend of 0.8p per Ordinary Share in respect
of year ended 31 December 2011
Friday, 8 June
F&C Private Equity Zeros' share premium account cancelled in
September
Record date for first semi-annual dividend per Ordinary Share in
respect of six months ending 30 June 2012 payable in accordance
with new dividend policy(4) in October
Payment of first semi-annual dividend per Ordinary Share in
respect of six months ending 30 June 2012 in accordance with new
dividend policy(4) in November
Notes:
(1) Or, if later, such time as the Company's AGM shall have
concluded or been adjourned.
(2) Or, if later, such time as the Ordinary Shareholders'
Meeting shall have concluded or been adjourned.
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