River UK Micro Cap (RMMC ) has set aside £2m for buybacks and put a managed wind-down on the table as its shares continue to trade at a high-teens discount.

The trust’s board said that if it fails to return at least £10m to shareholders over the next three years, it will propose an exit – either through a managed wind-down or other corporate action.

The trust currently runs a redemption mechanism designed to return capital periodically while maintaining net asset value (NAV) around £100m, which the board deems ‘optimal’ for exploiting the UK micro-cap opportunity.

With a portfolio net asset value (NAV) now just over £80m, it would need to deliver 11.1% annual NAV growth by the end of June 2028 deadline to trigger the mechanism, which Winterflood’s Alex Trett noted ‘has not been utilised in recent years.’

The trust’s market capitalisation is currently £66m, given the wide 17.4% discount it closed at on Friday.

The board specified that backing for the proposals comes from 42% of shareholders.

New York hedge fund and activist Saba Capital held a 15% stake as of late May. 

Winterflood’s Trett described the measures as ‘pragmatic, balancing the need to maintain sufficient scale without resorting to immediate or reactive measures.’

However, Deutsche Numis analyst Gavin Trodd warned that a wind-down could be complicated: ‘The fund itself is illiquid, with limited trading volumes and a wide spread of [circa] 4.6%. The underlying portfolio is also illiquid, meaning that realisation may be below NAV and take time, especially where larger stakes are held.’

UK micro caps ‘powering up’

RMMC has underperformed the AIC’s UK smaller companies sector over five years, with a 37.1% shareholder total return versus the 54.5% average. One-year results are stronger: up 6% versus a 5.7% sector decline. 

Chair John Blowers said today that the board is optimistic ‘the long-term future success of the company will be cemented by delivering attractive growth and more redemptions to shareholders over the next three years.’

Blowers described ‘strong signals that micro caps are beginning to power up’, saying the trust is ‘well positioned to grow rapidly’ as UK companies re-rate after a period of low valuations and ‘more certainty in the economy boosts small company growth prospects.’ Meanwhile, he said the fresh approach offers a ‘safety net’ for investors. 

RMMC’s shares rallied 7.1% today, following the announcement.