Benefits to Shareholders

Frostrow Capital is positioned so that its interests are aligned with the shareholders of its investment company clients. This is partly because we try to base our fees on market capitalisation, thereby encouraging us to help keep share price discounts as narrow as possible. Furthermore, our approach enables the boards of investment companies to operate with the knowledge and independence they need to act in the best interests of shareholders at all times.

As an owner-managed business we can ensure continuity of service and we have committed our futures to looking after our clients. Our independence from the investment manager means that we can provide a direct communication link between boards and shareholders thereby ensuring that companies are run for the benefit of their shareholders.

Further benefits for shareholders include:

  • Ensuring that companies are managed according to the highest standards of corporate governance at all times;
  • Facilitating communication between the portfolio manager and shareholders by arranging presentations, road-shows and seminars;
  • Ensuring that the investor information we produce is easily accessible and distributed in a constructive and effective way;
  • Actively promoting our client companies to new and existing shareholders in order to maintain demand for the shares. This helps to grow the companies, narrow their discounts and lower their total expense ratios

Case Studies

Saving an investment trust from winding-up and implementing a share buy-back program supported by active marketing.

Situation

  • The board of an investment trust was facing an imminent winding-up of the company
  • Investment performance had been poor, the discount was wide and there were a large number of arbitrageurs on the shareholder register threatening to force the return of their capital
  • The size of the company had shrunk to the point where it was no longer financially viable to continue operating

Solution

Working closely with the company’s broker and advisers, the team was part of a multi-faceted solution that involved the following:

  • Review and change of the investment mandate
  • Assisting the board with the conduct of a beauty parade to select a new investment manager to manage the new mandate
  • Negotiating a discount at which the bulk of the arbitrageurs were happy to exit earlier rather than go through the lengthy process of wind-up
  • Using our knowledge of the most active investors to enable us to find new, long-term shareholders to replace those leaving the register
  • Putting in place a share discount protection mechanism to ensure that the discount would not widen beyond a specific amount
  • Devising and implementing a comprehensive marketing strategy to continuously promote the company and maintain demand for its shares

Result

  • The investment performance of the company and its rating improved shortly after its reconstruction
  • The company was later able to raise more money from new and existing shareholders and to issue shares when it traded at a premium
  • Frostrow Capital continued to maintain a tight discount to NAV and no more arbitrageurs have since appeared on the share register
  • The future of the company was secured

Renewal of gearing facility in a severely reduced credit market avoids forced sale of investments.

Situation

  • The ability to gear a portfolio is one of the characteristics that set closed-ended investment companies apart from their open-ended competitors
  • The credit crunch has significantly reduced the ability of investment companies to obtain gearing facilities, as virtually all the former providers of this sort of lending have stopped or severely reduced their activities
  • A geared investment company that is unable to renew its gearing has to sell assets in order to pay back the debt. This is particularly painful if assets have to be sold at an inopportune time and is damaging to shareholder interests

Solution

  • Frostrow Capital anticipated the difficulty of renewing the gearing facility well in advance of maturity, of one of its investment company clients
  • After thorough research and after pursuing suggestions from a number of prominent contacts within the investment company sector, several options for renewing the gearing were considered
  • Frostrow Capital initiated negotiations on behalf of the company in order to achieve the best possible terms
  • Three possible solutions were presented to the board requiring the minimum of discussion, before one of the options was selected

Result

  • Frostrow Capital was able to present a solution to the board at the same time as making them aware of the extent of the problem
  • All research and negotiation was handled on behalf of the company which meant the board could select and approve a final course of action
  • A new gearing facility was arranged well in advance, avoiding a sale of assets in order to pay back the previous lender