Alternative Liquidity Fund

20 August 2021

Alternative Liquidity Fund Limited

Proposed issue of a new segregated class of Ordinary Shares, the appointment of Waverton Investment Management Limited as investment manager of the new Ordinary Portfolio and the adoption of a new investment objective and policy of the Ordinary Portfolio

Publication of Circular

The Board of Alternative Liquidity Fund Limited (the "Company") announces that it has today published a circular (the "Circular") in respect of proposals relating to the issue of a new segregated class of Ordinary Shares, the appointment of Waverton Investment Management Limited as investment manager of the new Ordinary Portfolio and the adoption of a new investment objective and policy of the Ordinary Portfolio.  The Circular contains a notice convening an extraordinary general meeting of the Company to be held at  9.00 a.m. on  6 September 2021 at Sarnia House, Le Truchot, St Peter Port, Guernsey GY1 1GR.

The text of the Chairman's letter, extracted from the Circular, is set out below. 

A copy of the Circular will be submitted to the National Storage Mechanism and will shortly be available for inspection at: https://data.fca.org.uk/#/nsm/nationalstoragemechanism and on the Company's website: https://alternativeliquidityfund.com/.

Terms used and not defined in this announcement bear the meaning given to them in the Circular published today.

1             Introduction

The Company was launched in September 2015 and invests in a diversified portfolio of illiquid interests in funds and other instruments and securities with the objective to manage, monitor and realise these investments over time. The Company currently has a single class of ordinary shares in issue, which is admitted to trading on the Specialist Fund Segment.

Since 25 February 2019, when the Company's current investment policy was adopted, the Company has pursued a realisation strategy in relation to the Existing Portfolio. The Company is currently a self-managed AIF and, since 1 January 2021, Hindsight Solutions Limited ("Hindsight"), a company owned and operated by Tim Gardner, has been appointed as the investment adviser to the Company in respect of the Existing Portfolio. Tim has provided oversight and support in relation to the management of the Company since its launch in 2015. In the Board's view, the Existing Portfolio retains significant value but such value will take several years to realise. The Board has been considering options for the future of the Company to enable it to continue such realisation process at a lower cost base.

The Board has also been reviewing potential growth strategies and the scope for the Company to offer new share classes. The Company published a placing programme prospectus in October 2019 with a view to issuing an additional share class to make investments in line with the Company's current investment policy. For a variety of factors, including the onset of COVID-19, no new capital was raised under that placing programme.

As well as focusing on realising the Existing Portfolio and maximising returns for Existing Shareholders, the Board believes that it is in the best interests of Shareholders to raise additional capital through the launch of a new segregated share class. Subject to Shareholder approval at the EGM, the Company is proposing to issue a new class of ordinary shares (which will be called the "Ordinary Shares") pursuant to an Initial Issue and subsequent Placing Programme. The new Ordinary Shares will also be admitted to trading on the Specialist Fund Segment.

The Board has agreed terms in relation to the management of the portfolio of assets attributable to the new Ordinary Shares with Waverton Investment Management Limited ("Waverton" or the "Investment Manager"). Further details on Waverton and the proposed strategy for the management of the assets attributable to the new share class are set out below and in Part 3 of the Circular.

With effect from Admission, the Company's existing class of ordinary shares will be re-designated the "Realisation Shares" to reflect the Board's policy to return cash from the proceeds of the investments and the Company's existing assets currently held within the Existing Portfolio will be attributable to the "Realisation Portfolio". Any new ordinary shares to be issued pursuant to the Initial Issue and the Placing Programme will be designated as "Ordinary Shares" and the assets attributable to that new segregated share class will be the "Ordinary Portfolio".

Conditional on the passing of the Resolutions and Admission, Waverton will be appointed as investment manager to the Company with responsibility for the management of the Ordinary Portfolio. Hindsight will remain as investment adviser to the Company in respect of the Realisation Portfolio.

In conjunction with the proposed introduction of the new segregated class of Ordinary Shares and the appointment of Waverton as investment manager of the Ordinary Portfolio, the Board is also proposing that:

(i)            the Company adopt a new and separate investment objective and policy of the Ordinary Portfolio, in order to reflect the differing investment strategies to be applied to the management of each of the Realisation Portfolio and the Ordinary Portfolio. The Company's existing investment objective and policy will continue to apply as the investment objective and policy of the Realisation Portfolio and will not be changed;

(ii)           certain amendments be made to the Company's articles of incorporation; and

(iii)          the Company's name be changed to "The Endowment Fund Limited".

The proposed new investment objective and policy of the Ordinary Portfolio is summarised in paragraph 4 below and set out in full in Part 2 of the Circular. A summary of the changes proposed to the Company's articles of incorporation is set out in paragraph 6 below.

The purpose of the Circular is to explain the Proposals which, in order to become effective, require, inter alia, the Resolutions to be passed at the Extraordinary General Meeting. The notice convening the Extraordinary General Meeting is set out at the end of the Circular. In addition to providing Shareholders with further details of the Proposals, the Circular also explains the reasons why the Board believes that the Proposals are in the best interests of Shareholders as a whole.

2             Further details of the Proposals

The Proposals are conditional on Shareholder approval. The Board is recommending that, at the EGM, Shareholders vote in favour of resolutions to:

·                 adopt a new investment objective and policy for the Ordinary Portfolio;

·                 amend the Articles in order to, inter alia, extend the continuation vote from being held at the annual general meeting of the Company in 2023 to 2026 and then every two years thereafter;

·                 approve the disapplication of the pre-emption rights contained in the Articles so that the Board will have authority to allot and issue (or sell from treasury) up to 250 million new Ordinary Shares pursuant to the Initial Issue and Placing Programme for cash on a non-pre--emptive basis;

·                 approve the buy back of up to 14.99 per cent. of the Ordinary Shares in issue on Admission; and

·                 change the Company's name to "The Endowment Fund Limited".

If Shareholders approve the Proposals, the Company intends to publish a prospectus and introduce the Initial Issue and 12 month Placing Programme for up to 250 million new Ordinary Shares, the net proceeds of which will be used to invest in a diversified portfolio of investments attributable to the Ordinary Shares in line with the new investment objective and policy of the Ordinary Portfolio.

If the Resolutions are passed, and conditional on Admission, Waverton will be appointed as the Company's investment manager in respect of the Ordinary Portfolio pursuant to an investment management agreement to be entered into between the Company and Waverton. Waverton is an independent, owner-managed investment management firm based in London with assets under management of approximately £7.6 billion as of 30 June 2021. Further information relating to Waverton, the key members of the investment team and the investment strategy proposed in relation to the management of the Ordinary Portfolio is set out in Part 3 of the Circular.

The Company and Waverton have entered into heads of terms in connection with the appointment of Waverton as investment manager in respect of the Ordinary Portfolio. Waverton will be entitled to receive a management fee of 0.75 per cent. per annum of market capitalisation and its appointment may be terminated on 12 months' notice, such notice to expire on or at any time after the fifth anniversary of Admission.

The existing investment advisory agreement in place in respect of the Realisation Portfolio will not be affected. If the Proposals become effective, the Realisation Portfolio's strategy will be to realise the underlying assets in the Realisation Portfolio as quickly as possible while also seeking to preserve value. It is unlikely that any new investments will be acquired by the Realisation Portfolio and, as a result of this portfolio going into wind down, it is expected that it will become more concentrated over time as assets are sold.

The Board will consider, over the next 12 to 24 months, options for the orderly termination of the Realisation Portfolio and will consult with Shareholders prior to determining the best route, which may include a portfolio sale of remaining assets in the Realisation Portfolio (and subsequent return of capital) or introducing a right of conversion of the Realisation Shares into another share class.

In the event that the Resolutions are not passed, the Proposals will not become effective, the Company will not publish a prospectus and no new Ordinary Shares will be issued, nor will the appointment of Waverton as investment manager of the Ordinary Portfolio become effective. In such an event, the Company will continue with its existing investment policy and realisation strategy, and to be advised by Hindsight in the execution of that strategy.

3             Benefits of the Proposals

The Board believes that the Proposals offer the following benefits for Existing Shareholders:

·                 increasing the Company's issued share capital through the Initial Issue and subsequent Placing Programme would result in the fixed costs of the Company being spread over a larger asset base and the ongoing expense ratio in respect of the Existing Portfolio being lower than would otherwise be the case; and

·                 the Existing Portfolio will continue to be realised in an orderly manner that achieves a balance between returning proceeds to Existing Shareholders promptly and preserving value. If the Proposals are not approved by Shareholders, the Company may accelerate the managed realisation of assets which could have a potentially negative effect on realisation values for underlying assets.

4             Adoption of new investment objective and policy of the Ordinary Portfolio

The Board is proposing, conditional on Shareholder approval, to adopt a new investment objective and policy of the Ordinary Portfolio, in order to reflect the differing investment strategies to be applied to the management of each of the Realisation Portfolio and the Ordinary Portfolio.  The Company's current investment objective and policy will continue to apply as the investment objective and policy of the Realisation Portfolio and will not be changed as part of the Proposals.

The investment objective of the Ordinary Portfolio will be to generate capital growth and income over the long term through investment in a globally diversified multi asset class portfolio across a range of quoted and unquoted asset classes.

The full text of the proposed investment objective and policy of the Ordinary Portfolio is set out in Part 2 of the Circular.

5             Distribution policy in respect of the Realisation Shares

Since the Company's launch, when the Existing Shares were originally issued at US$1.00, the Company has made 10 capital distributions in respect of the Existing Shares in the form of redeemable B shares to the Existing Shareholders.

The Board currently expects to continue to make capital distributions in respect of the Realisation Shares in the form of redeemable B shares as realisations are achieved in the Realisation Portfolio.

6             Amendments to the Company's articles of incorporation

In 2019, prior to the publication of the previous placing programme prospectus, amendments were made to the Articles in order, conditional upon the admission of any new Ordinary Shares to listing on the premium listing segment of the Official List of the FCA and to trading on the Main Market, to: (i) create two distinct portfolios, being the "Realisation Portfolio" and the "Ordinary Portfolio"; (ii) rename the ordinary shares of the Company the "Realisation Shares"; (iii) amend the rights attaching to the Realisation Shares; and (iv) include a new sub-article specifying the rights attaching to the new class of Ordinary Shares. As explained above, for a variety of factors, including the onset of COVID-19, no new capital was raised under that placing programme and the Company currently continues to have only a single class of ordinary shares in issue.

If the Resolutions are passed at the EGM, and conditional on Admission, the Articles will be amended to provide that the changes referred to above take effect on admission of any new Ordinary Shares to trading on the Specialist Fund Segment. In addition, the Articles will be amended to:

(i)            provide for the continuation vote to be extended so as to be held at the annual general meeting of the Company to be held in 2026 and every two years thereafter;

(ii)           remove the automatic conversion of Realisation Shares into Ordinary Shares upon the value of the Realisation Portfolio reducing below US$5 million;

(iii)          reflect the admission to trading of the Existing Shares, and the proposed admission to trading of the new Ordinary Shares, on the Specialist Fund Segment;

(iv)          increase the aggregate amount that may be paid to Directors by way of fees for their services in any financial year from £150,000 to £200,000. There is no intention to increase the fees currently paid to Directors, however, should the Proposals be approved by Shareholders, and the Initial Issue be successful, the Board may consider adding further Director(s) to strengthen corporate governance if it considers it in the best interests of Shareholders to do so;

(v)           reduce the time period after which unclaimed dividends shall be forfeited, and shall revert to the Company, from 7 years after the date of payment, to 3 years;

(vi)          reduce the time period after which the Company may sell the Shares of an untraceable Shareholder, and record such Shareholder as a creditor of the Company in respect of such sale proceeds, from 12 years to 3 years; and

(vii)         update for changes in legislation.

A summary of the rights attaching to the Realisation Shares and the Ordinary Shares, if the Resolutions are passed at the EGM and conditional on Admission, is set out below.

Summary of the rights attaching to the Realisation Shares

·                 At any general meeting of the Company each Realisation Shareholder will have, on a show of hands, one vote, and on a poll, a weighted vote determined by reference to the underlying NAV of the Realisation Shares and calculated in accordance with the Articles. This weighted voting right will be calculated and fixed immediately following Admission. As an illustrative example, a Realisation Shareholder holding 100 Realisation Shares, and on the basis of the Company's NAV of US$0.1617 per Existing Share as at 31 March 2021, and the prevailing GBP/USD exchange rate as at the date of the Circular, such Realisation Shareholder would have, on a poll, 11 votes in respect of the 100 Realisation Shares held.

·                 Each Realisation Share will entitle its holder to participate in a return of assets of the Realisation Portfolio on a winding up of the Realisation Portfolio.

·                 The prior class consent of the Realisation Shareholders will be required prior to inter alia:

o      any change being made to the investment policy which would materially affect the Realisation Portfolio;

o      any change being made to the Articles in such a way as to materially affect the class rights of the Realisation Shareholders; and

o      a resolution, other than the continuation vote resolution, being put to Shareholders in a general meeting in relation to the voluntary winding up of the Company.

Summary of the rights attaching to the Ordinary Shares

·                 At any general meeting of the Company each Ordinary Shareholder will have, on a show of hands, one vote, and on a poll, each Ordinary Shareholder will have one vote for each Ordinary Share held.

·                 Each Ordinary Share will entitle its holder to participate on a return of assets of the Ordinary Portfolio on a winding up of the Ordinary Portfolio.

·                 The prior class consent of the Ordinary Shareholders will be required prior to inter alia:

o      any change being made to the investment policy which would materially affect the Ordinary Portfolio;

o      any change being made to the Articles in such a way as to materially affect the class rights of the Ordinary Shareholders; and

o      a resolution, other than the continuation vote resolution, being put to Shareholders in a general meeting in relation to the voluntary winding up of the Company.

A copy of the Articles (containing the full terms of the amendments proposed to be made) will be available at the venue for the EGM for at least 15 minutes prior to and during the meeting and are available during normal business hours (Saturdays, Sundays and public holidays excepted) at the offices of Stephenson Harwood LLP, 1 Finsbury Circus, London EC2M 7SH until the close of the EGM.

7             Additional considerations associated with the Proposals

Existing Shareholders should have regard to the following when considering the Proposals:

·                 implementation of the Proposals is subject to a number of conditions, including Admission, and there is no certainty that the Proposals will become effective; and

·                 the Directors intend that, in the absence of unforeseen circumstances, each Portfolio will effectively operate as if it were a stand-alone company. However, as a matter of law, the Company is a single entity. Therefore, in the event that any of the Portfolios has insufficient funds or assets to meet all of its liabilities, on a winding-up or otherwise, such a shortfall would become a liability of the other Portfolios and would be payable out of the assets of the other Portfolios.

8             Initial Issue and Placing Programme

The Company is proposing to issue up to a maximum of 250 million new Ordinary Shares under the Initial Issue and subsequent Placing Programme. If the Resolutions are passed at the EGM, the Company will be permitted to issue up to 250 million Ordinary Shares to investors without first having to offer them, pro rata, to Existing Shareholders.

Waverton will seek to procure investors for new Ordinary Shares pursuant to the Initial Issue.

The Initial Issue and Placing Programme are conditional, inter alia, on:

·                 Shareholder approval being granted at the Extraordinary General Meeting for the Proposals;

·                 the publication by the Company of a prospectus in relation to the Initial Issue and Placing Programme which has been approved by the FCA; and

·                 Admission.

If Shareholders approve the Proposals, the Company intends to publish a prospectus and introduce the Initial Issue and 12 month Placing Programme. It is intended that the net proceeds of the Initial Issue and the Placing Programme will be invested in accordance with the new investment objective and policy of the Ordinary Portfolio.

If the conditions are not met, the Initial Issue and subsequent Placing Programme will not proceed.

9             Costs and impact of the Proposals

In the event that the Existing Shareholders do not approve the Proposals or Admission does not occur, the costs incurred by the Company in relation to the Proposals, including the publication of the Circular and the convening of the EGM, will be borne by Waverton.

In the event that Existing Shareholders approve the approvals and Admission occurs, the costs and expenses of the Proposals will be borne by the Company from the proceeds of the Initial Issue and accordingly be attributable only to the holders of the new Ordinary Shares.

10           The Extraordinary General Meeting

Shareholders will find set out at the end of the Circular a notice convening the Extraordinary General Meeting of the Company to be held at 9.00 a.m. on 6 September 2021 at Sarnia House, Le Truchot, St Peter Port, Guernsey GY1 1GR at which a special resolution and an extraordinary resolution will be proposed to:

(i)            adopt a new investment objective and policy of the Ordinary Portfolio;

(ii)           amend the Articles;

(iii)          change the name of the Company to "The Endowment Fund Limited";

(iv)          dis-apply the pre--emption rights contained in the Articles so that the Board has authority to allot and issue (or sell from treasury) in relation to the Initial Issue and the Placing Programme up to 250 million new Ordinary Shares for cash on a non-pre-emptive basis, such authority to expire at the end of the Placing Programme; and

(v)           approve the buyback of up to 14.99 per cent. of the Ordinary Shares in issue on Admission.

Each of the special resolution and the extraordinary resolution requires a majority of at least 75 per cent. of members entitled to vote and present in person or by proxy to vote in favour in order for it to be passed. Shareholders should also note that the special resolution to adopt the new investment objective and policy of the Ordinary Portfolio, amend the Articles, approve the buyback of the Ordinary Shares and change the Company's name is conditional on Admission.

11           Action to be taken by Shareholders

Shareholders will find enclosed with the Circular a Form of Proxy for use at the Extraordinary General Meeting. Whether or not Shareholders intend to be present at the Extraordinary General Meeting, Shareholders are requested to complete the Form of Proxy in accordance with the instructions printed on it and return it to Link Group at PXS 1, Link Group, Central Square, 29 Wellington Street, Leeds LS1 4DL so as to be received as soon as possible and, in any event, not later than 9.00 a.m. on 2 September 2021.

The completion and return of the Form of Proxy will not preclude Shareholders from attending the Extraordinary General Meeting.

12           Recommendation

The Board considers that the Resolutions are in the best interests of Shareholders taken as a whole and accordingly unanimously recommends that Existing Shareholders vote in favour of the Resolutions to be proposed at the Extraordinary General Meeting. The Directors who hold Existing Shares intend to vote in favour of the Resolutions in respect of their own beneficial holdings amounting, in aggregate, to 100,000 Existing Shares (representing approximately 0.07 per cent. of the Company's issued share capital as at 19 August 2021).

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