Princess Private Equity (PEY ) faced the wrath of shareholders at its annual general meeting (AGM) last week as long-running tensions – that saw two directors step down before the meeting – came to a head.

Directors Steve Le Page and Felix Haldner took the unusual step of withdrawing their nominations to remain as board members a day before the AGM on 23 June, effectively handing in their notice. The decision came after a tough year for the fund that has put it at loggerheads with investors, who have suffered a dividend suspension.

The shares in the euro-denominated global portfolio of unquoted companies slumped to a two-and-a-half year low in November after manager Partners Group scrapped the interim dividend on the back of soaring currency hedging costs as the US dollar strengthened against the euro.

The Guernsey investment company is unique among London-listed private equity funds in hedging out currency movements that can magnify or eliminate underlying investment returns.

The dividend was reinstated for 2023 at 5% of net asset value (NAV), which is representative of a 7.1% yield but the fund has underperformed its private equity peers for some time. Over three years, the NAV has grown just 34.5% versus a 125.4% average rise in the Numis Private Equity Direct sector, and over five years the fund is up 61.9% versus a 168.7% return from the average fund.

While the board of the company provided little information about the departure of Le Page and Haldner, simply thanking them ‘for their contributions and services to the company during their tenure’, Numis analyst Ewan Lovett-Turner said it is ‘likely that there was some significant voting against them’ given the performance of the fund.

‘We would expect that fully understanding and reviewing shareholders views will be top of the agenda for the remaining board to focus on understanding shareholders’ views,’ Lovett-Turner said.

‘This continues the trend of investors becoming more active in voicing their views in the investment companies sector. We have seen several cases of meaningful votes against chairs and board members as investors are holding boards to account during difficult periods, as well as continuation votes being more closely contested.’

Lovett-Turner said it would be ‘interesting’ to see who takes Le Page’s place as he was due to be appointed chair of the fund, succeeding Richard Battey, who had previously stepped down from the post. Fionnuala Carvill has been appointed interim chair.

He added that it ‘makes sense’ that Haldner stepped down from the board given his position as advisory partner to Partners Group.

Lovett-Turner said he ‘favours fully independent boards’ and prefers that manager representatives ‘recuse themselves from discussions such as manager evaluation and strategic reviews’.

Like its private equity peers, the fund trades on a wide discount, 29.2% to NAV, which Lovett-Turner describes as ‘too wide for a diversified portfolio’ and the board is likely to face continued pressure to narrow it.

He is not expecting another dividend suspension given the currency hedge has been removed, in what he said was ‘a sensible step for UK-based investors’.

‘However, the dividend was also suspended during Covid and the variability of income has made the fund more difficult to own for some income investors,’ he said.