TwentyFour: Unity Day
TwentyFour Asset Management has shrugged off criticism over its plans to merge £700m investment funds without giving shareholders voting rights.
The fixed-income manager said last week that it planned to fold its specialist UK Mortgages fund, a serial underperformer since its launch in 2015, into the much larger TwentyFour Income Fund via an asset transfer . Under the proposals, UK mortgage holders will receive TFIF shares at a 1.25% premium to the prevailing net asset value.
The quick shutdown appears to be the best possible outcome for British mortgage investors, who have been pushing for exit routes since management rejected an approach to take over M&G in the summer of 2020. Their next opportunity to cash in, if everything is going according to plan, will be during the TFIF triennial achievement vote scheduled for the fourth quarter.
But a few TFIF investors asked what was in it for them. Their closed-end fund has tended to trade above net asset value, unlike UK mortgages, and applies a much broader mandate of holding European asset-backed securities. The decline in relatively illiquid property debt held by UK Mortgages means that TFIF’s portfolio will increase by around a fifth and the weighting of residential mortgage-backed securities will drop from 49% of the total to around 60%.
TwentyFour said last week that instead of seeking shareholder approval, it would consult with major investors on the plan. In response, some TFIF holders accused the company of trying to save face at their expense. In their view, TwentyFour seeks to avoid the embarrassment of having to liquidate UK Mortgages, which one investor described as a “failed experiment”, while retaining the assets for potentially higher annual management fees.
Nonsense, said Aza Teeuwen, portfolio manager of the TFIF fund. He told City Insider that TFIF sought and received the support of all of its major shareholders before making the proposal public, and that no objections had been raised before or since. The strength of support meant that a shareholder vote would only hamper the process and introduce unnecessary risk, he said.
Teeuwen also denied any change in investment mandate. Adding more inflation-linked rental income from buy-to-let obligations has always been the plan, he said. And, rather than TwentyFour arranging the marriage, he said his fund made the first move because UK Mortgage’s troubles made it a relative bargain compared to the prices private equity was paying for similar assets.
Next: point of no return
Market timing is a dark art. Just ask Next.
The FTSE 100 retailer quietly restarted a share buyback program last month that had been on hold since April 2020. Between January 24 and February 11, its corporate broker UBS used around £44 million of cash to buy nearly 615,000 Next shares for cancellation, paying up to £76.42 apiece.
Special dividends have been Next’s preferred method of returning excess capital during the pandemic: the September 2021 and January 2022 trade updates came with one-off payments worth £140m and £205m. pounds sterling respectively. The Christmas update set out plans to resume ordinary dividends for the current fiscal year and signaled the trigger level for redemptions, which only come into play when the share price is low enough against to pre-tax profits expected to provide an equivalent of 8% or better. return rate. Deutsche Bank analysts estimated that after the last special dividend, Next still had around £200 million in reserve to fund takeovers.
How to read the break since February 11 is therefore not easy. Next enters a closed period this week ahead of annual results scheduled for March 24. But the final authority over when to buy back shares rests with UBS, not Next management, so buybacks can continue during closed periods without breaching market abuse rules. With Next shares slipping in recent sessions to their lowest level since December 2020, it is curious that UBS bought over £76 per share, but not two weeks later when the stock fell below £70 .