Downing Strategic Micro-Cap Investment Trust, which trades on the London Exchange, plans to wind down operations and return capital to investors.
The proposal is scheduled to be put to a shareholder vote on Feb. 28.
The investment firm has been focused on unlocking value from a concentrated portfolio of between 12–18 companies under £150 million market capitalization at initial investment.
The board of directors in May 2022 had announced its intention to provide a significant redemption opportunity to shareholders on May 31, 2024. The opportunity would enable shareholders to redeem or have a matched sale for up to 50% of their holdings.
Since that announcement, Downing Strategic said the market has continued to undervalue both microcap stocks and small investment companies in the United Kingdom and this is reflected, in part, in the material discount at which the company’s shares have been continuing to trade relative to their underlying net asset value.
“A negative sentiment towards UK small companies has persisted over the past two to three years,” Downing Strategic said in a statement. :Value and micro-cap investment strategies have equally been out of favor and the company has not attracted a great deal of new investors, with the company itself being a significant acquirer of its own shares.”
In addition, investment trusts are currently generally trading at wide discounts and as the wealth management sector, a significant buyer of investment trust stock, continues to consolidate there is little interest from the sector in small, specialist vehicles such as Downing Strategic, the company added.
Judith MacKenzie, lead manager of the trust, said the decision had been made by Downing and the board in light of the continuing negative sentiment towards UK smaller companies despite the simultaneous M&A interest in buying these companies by private equity and corporate buyers.
Over the past five months, three investee companies have been under offer or have fully exited. The total current market and exit value of these companies represents approximately 20% of the company’s net asset value as of Aug. 31.
By the end of the first quarter, the company expects to return 25% of shareholders’ capital at NAV which, given the company’s 11.9% discount as of Jan. 31, would be a 13.5% premium to the current share price. McKenzie said this will be followed by further returns as liquidity/trade exits permit. Read more.
