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magazineBig shareholder wants fee-spat hedge funds to merge
Two listed hedge funds that significantly beat the broader UK stock market in 2020 could merge.
BH Macro (BHMG) and BH Global (BHGG) are under pressure from Investec, which is a shareholder in both vehicles, to combine into a single entity.
The proposal is on the grounds that the two hedge funds have significant portfolio overlap and they could become smaller and less liquid in the wake of upcoming tender offers implemented following a rumpus over management fees which hit the ratings of both trusts.
Investec has requested that merger talks take place before both funds make a tender offer for up to 40% of each share class. This follows the approval of increases to the funds’ fees after shareholders were presented with a controversial ultimatum by manager Brevan Howard, which warned it would resign and redeem the listed funds’ holdings unless fees were increased.
BH Macro is a feeder into the Brevan Howard Master Fund, whereas BH Global invests in the Brevan Howard Multi-Strategy Master Fund and can allocate capital directly to underlying traders.
In 2020, the sterling dominated version of BH Macro generated a 35% total return for investors and BH Global returned 27% versus a 10% decline from the FTSE All-Share.
BH Global is open to discussions yet appears slightly miffed that until now its largest shareholders have either ‘voiced continuing support for a vehicle specifically designed to invest in the Brevan Howard Multi-Strategy Fund or at the very least shown no strong desire for a combination of the two companies to be effected’.
To date, notes BH Global, Brevan Howard has also ‘emphasised its support for two separate funds pursuing discrete investment mandates’.
Liberum Capital believes a merger makes sense given the crossover in strategies and shareholder register and for liquidity reasons. The broker says: ‘The high fee structure will still remain, and we believe the funds will struggle to attract a material number of new investors as a result.’
The investment trust team at Stifel welcome the merger proposal, having previously questioned why BH Global exists ‘as it is not sufficiently differentiated from BH Macro, while historical performance is lower’.
Stifel adds: ‘Its only value to date is as a relative value play when the spread between the funds is large. In our opinion, we would take the opportunity to merge the product with BH Macro thereby reducing overall expenses and increasing liquidity.’
Numis says that assuming full take up of the 40% tender offers, BH Global would have a market cap of £260 million, aggregating the two share classes, and BH Macro £332 million, ‘both of significant scale, however a combined vehicle with a market cap of circa £592m is likelier to appeal to a broader range of investors.’
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