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Gresham House fired from LMS Capital after Rayne family regain control

2 December 2019

Gresham House Asset Management has been stripped of its contract to run LMS Capital after losing a fight with family shareholders behind the small private equity investment trust.

Gresham House Asset Management has been stripped of its contract to run LMS Capital (LMS) after losing a fight with family shareholders behind the small private equity investment trust.

Investors in the £47 million trust last week voted by 58.3% to 41.6% against renewing Gresham's contract.

Those who voted down the proposal to continue an agreement with Gresham House included the Rayne family – who own 42% of the trust – with their votes making up 81% of those against.

The defeat of the directors paved the way for LMS’ former chief executive, Robert Rayne, to become its chair and bring management in-house. His internal management proposal includes a potential return of capital.

Following the general shareholder meeting, LMS chair Martin Knight and other independent directors Neil Lerner and Rod Birkett resigned from the board saying they did not believe the internal management proposal was 'in the best interest of shareholders’.

They were afterwards replaced by Rayne's nominees – managing director Nick Friedlos and non-executive directors James Wilson, Peter Harvey and Graham Stedman.

Rayne said: 'It is my firm view that a return to an internally managed business model is in the best interests of all shareholders. 

'I am, therefore, delighted that LMS will be returning to the active management of our investments.  I am also delighted to welcome, as part of the return to internal management, our highly experienced team of directors to the board.'

A Gresham spokesperson said the loss of the fund was 'not financially material' to its business, as its assets represented less than 2% of the firm's £2.5 billion in assets under management.

The firm added: 'A very substantial majority of holders of non-Rayne concert party shares comprising 82%, supported the board’s recommendation and voted for the re-appointment of Gresham House.'

LMS Capital was founded in 2006 to manage the assets of late property developer Max Rayne, who died in 2003, in a spin off from his operating business London Merchant Securities.  

In a circular issued earlier this month, the board had urged shareholders to back Gresham House which had pledged to reduce its annual management fee.

Following the posting of the circular, the board criticised Rayne last week for issuing his own letter to shareholders along with his own form of proxy.

Gresham was handed the mandate in August 2016 after it abandoned a planned transformation into a deep-value energy strategy, having at that point returned £150 million to investors since 2011.

A steep fall in the share price last week saw the trust close at a 20% discount to its £59 million net asset value. 

Analysts at LMS corporate broker JPMorgan Cazenove expressed their concern. Christopher Brown and Adam Kelly said they were 'uncomfortable about a 42% concert party effectively being able to take control without paying a premium.'

'We saw nothing in the Rayne proposals that, in our view, will improve upon the investment proposition,' the analysts added, pointing out LMS 'will have fewer resources' and find it harder 'to recruit expertise it does not currently have'.

In the three years to the end of October, LMS Capital's NAV fell by 16.7%. The analysts said Rayne 'must also take a large amount of the responsibility for the poor performance of LMS over recent years.'

With over a third of the shareholders now looking to exit they concluded: 'The shares seem destined, in our view, to languish on a wide discount indefinitely, with no obvious reason for new buyers to come on board.' 

Investment company news brought to you by Citywire Financial Publishers Limited.


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