Scottish Oriental Smaller Companies Trust (SST ) has lowered the hurdle rate its fund manager, Sentier Investors’ Vinay Agarwal, has to generate to earn an additional 10% performance fee.

The £337m listed Asia small-cap fund said the performance fee would be triggered if its net asset value (NAV) grew by more than 2% above the MSCI AC Asia ex-Japan index over three-years.

The hurdle rate was previously 10%.

‘The board believes that this structure is an appropriate way to incentivise and reward the alternative investment fund manager to deliver consistent positive returns above those available using a passive index model, whilst also allowing for a competitive base management fee,’ it said referring to the 0.75% it pays Sentier Investors.

In another concession, any excess outperformance above a 1.5% charges cap will be carried forward and paid in future periods of outperformance.

A ‘high watermark’ means the fee will only be paid when the shares exceed the level where a performance fee was previously paid. That was 1 September last year when the shares stood at £12.75, £1.45 below their current £14.20.

Over the three-year period to September 2023, total returns of 50% beat the hybrid benchmark, which switched from the MSCI AC Asia ex-Japan index to the MSCI AC Asia ex Japan Small Cap index during the timeframe, triggering a £2.2m performance fee.

The trust also has a five-yearly performance-related 25% tender offer in place, with the review period finishing in September 2026.

Just under half, or 44%, of the portfolio managed by Vinay Agarwal is made up of companies in India, with a 31% weighting to China, Hong Kong and Taiwan. According to the June factsheet, the largest sector weightings are consumer staples, consumer discretionary and materials, which have respective stakes of 31%, 24% and 14%.

The shares have risen 17% year to date, leaving them on a 14% discount.