Having discussed the Proposal with some shareholders and their representatives, it is my opinion that the proposals do not sit well a large number of shareholders and that the Proposals are unlikely to benefit the majority of shareholders, who on the whole wish to see the EEA fund a return as much of their capital as possible
No Mandate for on-going fund
The Board’s proposed rollover in to a new closed-ended fund to be admitted to the London Stock Exchange seems at odds with the wishes of the majority of shareholders that are in the Run-Off share classes and those with Continuing share classes that have requested a redemption.
As of the October 2022 NAV, 56% of the NAV of the fund investors are in Run-Off Cells, and from our counting of those shareholders in the continuing class that have made redemption requests the % of NAV wishing to exit EEA is 69%.
Merging of share classes
The Boards proposal to merge all shares classes in to one appears logical at first glance, however there is no mention of how to select a final exchange rate at which conversion is completed, let alone how to treat the holders of continuing shares that are at various stages of the redemption queue (some appear to be waiting since 2016) and have seen perhaps some partial redemptions versus those at the other end of the spectrum who have never made a redemption request.
No evidence in lowering costs
The Board have presented no evidence or costed comparison of a reduction in cost for the fund in a scenario of becoming Listed. The fund has been charged fees of c. $4.4m in 2021 and $5.3m 2020, yet there is nothing in the proposal to suggest what part of the Expenses might be reduced with a listing.
A similar listed Traded Life policy fund which makes a suitable comparison might be LSAA Plc, which has in their 2021 Full Year accounts reported an $88m NAV and $4m of Investment management fees and $6.5m of Other Expenses of which just $2.9m are Policy Servicing fees, a total of c. $7.6m of operating fees on a c. $88m fund, a much higher % of fees to NAV than even EEA.
Investors should be provided with a costed and researched budget that shows a material improvement in the funds expense ratio to compensate holders for the risk of the change coming at great expense.
No evidence of improved secondary pricing
The Board have not shown that Shareholders will benefit from a listing compared to the current options of selling their shares.
That there is a better secondary market via a listing is not necessarily proven, looking again at LSAA Plc, over the period of the 11th of November to 12th of December, 10,867 shares have been reported as trading for a combined value of £14,690.45. LSAA Plc has 49.8m shares outstanding so the number traded on the exchange represents just 0.02% of shares, the equivalent of c. 215 shares of EEA trading.