Ann: Investment Report & NTA Update - October 2017, page-50

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Nov 20 2017 at 11:00 PM Updated Nov 20 2017 at 11:00 PM
 
[SIZE=6][B]Contango Microcap showdown as ex-directors cry foul[/B][/SIZE]

by [URL='http://www.copyright link/brand/rear-window/myriam-robin-guxp6d.html']Myriam Robin[/URL]
 
 
The twisting story of Contango Microcap has taken on yet another strange turn, with directors ousted by shareholders at an EGM earlier this year urging the same shareholders to vote against the latest reconstitution of the listed fund. They argue it's more geared to reward the current investment manager than unit holders.
 
The ex-directors are the vehicle's founder David Stevens, along with Ian Ferres and Glenn Fowles. Heavyweights of the Melbourne business community, they were nonetheless removed from the board in March following a high-profile and bitter campaign that questioned their judgment and their directors' fees. The EGM, requisitioned by shareholders associated with investment manager Contango Asset Management, moved for their dismissal after they appointed a second investment manager to manage a small portion of the fund in a bid to improve its investment returns, which had been poor.
 
But after regaining full management of the vehicle, Contango Asset Management wouldn't keep it for long. In one of his last acts as MD last month, Contango Asset Management's George Boubouras effectively sold Contango's right to manage the vehicle to NAOS Asset Management, for $12.5 million (subject to shareholder approval).
 
This new investment contract, the ex-directors argue, has no termination clause, no performance review term, moves the fund away from microcaps, and adds a performance fee without sufficiently reducing the annual management fee in return. "This is an outrageous position for your recently appointed board to place you in," they argue in a joint letter to shareholders.
 
Sebastian Evans, who says NAOS is there to "clean up" Contango Microcap.
 
'Neglected for many years'
 
NAOS' Sebastian Evans describes these claims as "bending the truth". "For example, we are certainly not moving away from investing in microcaps, the new agreement will simply provide additional flexibility for us to hold on to strong performing positions rather than being forced to sell something because of its size," he told Rear Window.
 
"Our view is that the vehicle has been neglected for many years ... Shareholders are understandably frustrated, the whole point is we're trying to clean it up and provide a fresh start with a focus on creating shareholder returns." Which NAOS, he added, has a track record of doing, making it hard to argue the appointment won't benefit shareholders.
 
But the method of NAOS' appointment is part of the whole problem, Stevens argues. He wants a "beauty contest" of various management options considered, rather than an appointment as has happened with NAOS (which, he adds, is a major shareholder in Contango Asset Management). The appointment, he told this column, is particularly odd given the current investment contract the LIC has with Contango is shortly due for revision anyway, meaning a fuller consideration of who to appoint could have been undertaken.
 
The three ex-directors are urging for their own reinstatement to the board, saying they'll keep the current investment contract while looking broadly for the best investment manager for the LIC. They don't have long to convince – the AGM is in a week's time.
 
 
 
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