Change of Investment Policy

 

TIDMNST 
 
RNS Number : 9981X 
New Star Financial Opp Fd Ltd 
25 August 2009 
 

 
 
 
 
New Star Financial Opportunities Fund Limited 
Recommended proposals to amend the investment policy and change the Company's 
name 
25 August 2009 
 
 
New Star Financial Opportunities Fund Limited (the "Company") has today 
published a circular (the "Circular") to Shareholders detailing recommended 
proposals to (i) amend the investment policy (including the gearing policy and 
benchmark index); (ii) make consequential amendments to the dividend and 
accounting policies and Investment Management Agreement; and (iii) change the 
name of the Company. The proposals are subject to Shareholder approval at an 
Extraordinary General Meeting being convened for 14 September 2009. 
 
 
The Proposals have been formulated following the recent acquisition by Henderson 
Group plc ("Henderson") of New Star Asset Management Group PLC ("New Star"), the 
ultimate parent company of the Manager, the internal appointment of Guy de 
Blonay to manage the Company's portfolio and also following consultation with a 
number of major Shareholders. 
 
 
In summary, the Proposals are: 
 
 
?    a continuation of the Company's exposure to financial companies under the 
management of Guy de Blonay at Henderson, but with a revised and broader 
investment policy encompassing investment opportunities on a global basis with 
the aim of maximising the total return to Shareholders without the constraint of 
a very high yield target; 
 
 
?    changing the benchmark for measuring the Company's investment performance 
to the MSCI World Financials Index (and making a consequential amendment to the 
Investment Management Agreement) to reflect the proposed broader investment 
policy; 
 
 
?    as part of the revised investment policy, the objective of reducing and 
then, as policy, maintaining the level of gearing no higher than 30 per cent. as 
a proportion of net assets; 
 
 
?    an initial continuation, using the Company's revenue reserves, and then 
change of the Company's dividend policy with the aim of a sustainable level of 
total dividend which represents an attractive proposition in current market 
conditions; 
 
 
?    an amendment to the Company's accounting policy to reflect the proposed 
revised investment policy and dividend policy; 
 
 
?    giving Shareholders the opportunity to vote on the continuation of the 
Company as an investment company at the annual general meeting to be held in 
2011 (subject to certain caveats, as noted below). If Shareholders vote against 
the continuation of the Company at that meeting then proposals will be put to 
Shareholders within three months to wind up or otherwise reconstruct the 
Company; and 
 
 
?    a change of the Company's name to "Henderson Financial Opportunities 
Limited". 
 
 
The proposed changes to the Company's investment policy (including the changes 
to the benchmark index and the gearing policy) are considered a material change 
requiring the approval of Shareholders in accordance with the Listing Rules. The 
proposed change of name is also subject to Shareholder approval in accordance 
with the requirements of The Companies (Guernsey) Law, 2008. 
 
 
Background to, and reasons for, the Proposals 
 
 
In late 2008, one of the casualties of the financial crisis was the group that 
managed the assets of the Company: New Star had to be rescued by its banks, a 
consortium that had taken a 75 per cent. stake in the group. On 30 January 2009, 
the boards of directors of Henderson and New Star announced the terms of 
Henderson's recommended acquisition of New Star. The acquisition was 
successfully completed in April, when the Board was pleased to announce the 
internal appointment of the respected financials investment manager, Guy de 
Blonay, to manage the Company's portfolio. Mr de Blonay has over 13 years' 
investment experience, specialising in global investment markets, and currently 
manages two other global financials funds. No amendments were made to the 
Investment Management Agreement as a result of the acquisition. 
 
 
This change in portfolio manager has provided an opportunity to re-assess the 
optimum strategy for the Company under Henderson's management and in light of 
the significantly changed landscape for financial companies across the world. 
The Board has taken into account Mr de Blonay's global expertise and also his 
view that pan-European markets potentially offer one of the least attractive 
financials markets for investment over the medium term. The Board, therefore, is 
proposing amendments to the existing investment policy in order to broaden the 
Company's investment policy to provide greater geographic opportunity and 
flexibility, allowing investment on a global basis and with a consequential 
change to the benchmark index (as set out below). 
 
 
In reviewing the investment policy, the Board has been mindful of the balance 
required between the Company's existing investment policy, being to deliver a 
high level of income and, following the recent economic downturn, the need to 
deliver a more sustainable level of return, both in terms of capital and income. 
To this end, the Board also is proposing changes to the Company's gearing, 
accounting and dividend policies to better enable the Manager to seek to deliver 
attractive long-term total returns to Shareholders. 
 
 
The Board believes that the Proposals should enable the Company to remain an 
attractive long-term investment. In due course, the Board is aiming to increase 
the size of the Company in order to improve liquidity in the Ordinary Shares, 
and also to reduce the impact of the fixed running costs on each Shareholder. 
 
 
In these uncertain times it, however, is recognised that Shareholders would 
benefit from the comfort of knowing that, should this objective not be achieved, 
they would have the opportunity to vote on the future of the Company. Therefore, 
the Board intends (subject as set out below) to propose an ordinary resolution 
at the annual general meeting of the Company to be held in 2011 that the Company 
continue as an investment company. If that resolution were not passed, then 
proposals to wind up or otherwise reconstruct the Company would be put to 
Shareholders within three months. If the resolution to continue the Company were 
passed, it would be put to Shareholders again at the annual general meeting to 
be held in 2014. In the event that the Company successfully undertakes a 
significant fund-raising prior to the date of the annual general meeting in 
2011, the Directors, in their absolute discretion, may decide that it would no 
longer be appropriate to have a continuation vote in 2011. In these 
circumstances, a resolution to continue the Company would still be proposed in 
2014. 
 
 
The Proposals 
 
 
Investment policy 
 
 
The Company's existing investment policy is "to provide Shareholders with a high 
level of income and the potential for capital and income growth by investing 
predominantly in the equity, debt or other securities of listed European and UK 
financial companies". The Company's existing investment policy contains the 
restriction that the Company may invest up to 25 per cent. of its total assets 
(at the time of purchase) in financial companies listed outside Europe and the 
UK (the "Geographic Investment Restriction"). 
 
 
To reflect the greater geographic flexibility and longer-term objective of 
attractive and sustainable returns as set out above, the Board considers it 
appropriate to propose amendments to the Company's investment policy as follows: 
 
 
"The investment objective of the Company is to maximise total return from a 
global portfolio of investments in financial companies whilst recognising the 
importance of dividend income to shareholders. 
 
 
The Company will seek to achieve its investment objective by investing 
predominantly in the equity, debt or other securities of listed financial 
companies." 
 
 
The Geographic Investment Restriction, therefore, will no longer apply. As part 
of the revised investment policy, the Company's benchmark index and gearing 
policy will also be amended, as set out below. All other investment limits and 
restrictions, as set out in the Company's report and accounts for the year ended 
30 November 2008, will remain unchanged. 
 
 
Change in benchmark index 
 
 
As part of the revised investment policy, the benchmark index for measuring the 
Company's investment performance will be changed from the Dow Jones STOXX 600 
Financials Index, a predominantly European-focused index, to the MSCI World 
Financials Index, an index representing global financial companies. 
 
 
Gearing policy 
 
 
The Company currently employs financial gearing, thereby increasing the gross 
capital that can be used by the Company to generate income to pay a dividend. 
This gearing is provided through a prime brokerage facility with Credit Suisse. 
As at 20 August 2009, the Company had GBP11.7 million outstanding under this 
facility that represented gearing of approximately 80 per cent. of net assets as 
at that date. 
 
 
The Board believes that a lower level of gearing is more appropriate for the 
Company going forward and, conditional on the passing of Resolution 1 at the 
EGM, will instruct the Manager to manage the Company's gearing with the 
objective of reducing the level to no higher than 30 per cent. of net assets. 
Whilst the Board is mindful that high levels of gearing have contributed to the 
poor capital performance, with the current prospects for capital growth from the 
portfolio, it may not be in Shareholders' best interests for any immediate or 
drastic reduction in gearing. It, therefore, is proposed that the Board will 
have the flexibility to reduce the gearing, as and when it sees fit and taking 
account of market conditions. Once gearing has been reduced to or below 30 per 
cent. of net assets it is the Board's intention that thereafter it is capped at 
no higher than 30 per cent. Gearing will be managed flexibly which will mean 
that it is possible that in the future the level of gearing might fall below 
zero in bear markets as the Manager sells investments and holds cash. 
 
 
Accounting policy 
 
 
Conditional on implementation of the proposed amendment to the Company's 
investment policy, the Board proposes, with effect from 1 December 2009, to 
alter the Company's accounting policy with respect to the treatment of expenses. 
Whereas expenses currently are charged wholly against the capital account of the 
statement of operations, the proposed policy will provide that they are charged 
as to 50 per cent. against the capital account and 50 per cent. against the 
revenue account of the statement of operations. 
 
 
Dividend policy 
 
 
The Company has paid dividends of 0.75p per Ordinary Share in respect of each of 
the first two quarters of the current financial year. This level of dividend 
has, in part, been supported by the Company's gearing and accounting policies 
and also by the high level of income derived from the Company's investment 
portfolio. As set out above, it is the Board's intention to amend the investment 
policy (including the gearing policy) and accounting policy of the Company, 
which are expected to result in a lower, but more sustainable, level of income 
being available to pay as a dividend. The Board believes that these amendments 
will provide for the potential of enhanced capital growth, and thereby total 
return, on the Ordinary Shares. 
 
 
Conditional on the passing of Resolution 1 at the EGM, commencing with the 
financial year to 30 November 2011, it is the Board's intention to reduce the 
level of dividend to better reflect the income generated from the underlying 
portfolio with a target yield to Shareholders of 30 per cent. over the yield on 
the proposed new benchmark index. As at 30 July 2009, the yield on the MSCI 
World Financials Index was 3.4 per cent. which equates to a target yield to 
Shareholders of 4.4 per cent. This does not constitute a forecast of the profits 
or returns from investment in the Ordinary Shares, and there can be no guarantee 
of any particular level of profits or return. The payment of any dividend is 
also subject to the provisions of The Companies (Guernsey) Law, 2008, which 
requires that the Directors must be satisfied, on reasonable grounds, that the 
Company will, immediately after payment of the dividend, satisfy a solvency 
test, which the Company satisfies if it is able to pay its debts as they become 
due in the normal course of the Company' business and the value of its assets 
exceeds the value of its liabilities. 
 
 
The Board is aware that many Shareholders place importance on the level of 
income delivered by the Company and believes that the future, reduced level of 
dividend continues to represent an attractive proposition in current market 
conditions. Further, in recognition of the balance standing to the account of 
the Company's revenue reserve, it is the Board's intention to pay 0.75p per 
quarter in respect of the remaining two quarters of the current financial year 
to 30 November 2009 and to maintain this level of dividend in respect of the 
financial year to 30 November 2010?. In the event that the Company undertakes a 
significant fund-raising prior to 30 November 2010, it is the Board's intention 
to pay a special dividend, payable to existing Shareholders just prior to the 
fund-raising, in order to recognise the then existing Shareholders' income 
position. Following any such fund-raising, and conditional on the passing of 
Resolution 1 at the EGM, the dividend policy would be altered to reflect the 
target yield specified above. 
 
 
Life of the Company 
 
 
Under the Articles, the Board is obliged to propose an ordinary resolution at 
the annual general meeting of the Company to be held in 2018, and every ten 
years thereafter, that the Company should continue as an investment company for 
a further ten years. Conditional on the passing of Resolution 1 at the EGM, the 
Board intends (subject as set out below) to propose an ordinary resolution at 
the annual general meeting of the Company to be held in 2011 to continue the 
Company as an investment company. If this resolution were not passed, then 
proposals to wind up or otherwise reconstruct the Company would be put to 
Shareholders within three months. If the resolution were passed, then it would 
be put to Shareholders again at the annual general meeting of the Company to be 
held in 2014. 
 
 
In the event that the Company successfully undertakes a significant fund-raising 
prior to the date of the annual general meeting in 2011, the Directors, in their 
absolute discretion, may decide that it would no longer be appropriate to have a 
continuation vote in 2011. In these circumstances, a resolution to continue the 
Company would still be proposed in 2014. 
 
 
Change of name 
 
 
To reflect the fact that the Manager is now owned by Henderson and in order to 
capitalise on the benefits of Henderson's corporate branding and marketing, the 
Board considers that it is appropriate to change the Company's name to 
"Henderson Financial Opportunities Limited". If Resolution 2 were passed at the 
EGM, the Company would apply to amend its TIDM trading symbol from NST to HFO. 
 
 
Investment management arrangements 
 
 
Pursuant to the Investment Management Agreement, the Manager is entitled to be 
paid a management fee and, subject to certain performance conditions being met, 
a performance fee. The performance fee is at the rate of 15 per cent. of the 
amount by which the NAV total return of the Ordinary Shares outperforms the 
total return of the Dow Jones STOXX 600 Financials Index, plus a hurdle of 2 per 
cent. per annum. The fee is payable twice yearly, with a cap of 2 per cent. of 
net assets in respect of any particular financial year, subject to meeting a 
high watermark. 
 
 
Conditional on the passing of Resolution 1, and in order to reflect the adoption 
of the revised benchmark index for measuring the Company's investment 
performance, the index for measuring any out-performance by the Manager and, 
therefore, calculating any performance fee, will be changed to the MSCI World 
Financials Index. Performance fee payments are subject to a high watermark 
provision, and the high watermark that currently applies is the Net Asset Value 
per Share at the time of the tender offer in 2007, which was 70.18 pence. 
Consequently, no performance fee will be payable until the Net Asset Value per 
Share exceeds this level. As at 20 August 2009, the Net Asset Value per Share 
was 38.36 pence. 
 
 
Benefits of the Proposals 
 
 
The Board believes the Proposals should have the following benefits for 
Shareholders: 
 
 
?    the opportunity to benefit from the greater investment flexibility 
conferred on the Manager by a wider investment policy; 
 
 
?    the prospect of maintaining the current level of dividend until 30 November 
2010; 
 
 
?    an ongoing dividend yield that is above average, at a sustainable level and 
offers the potential of dividend growth thereafter; 
 
 
?    the potential for improved capital performance and an improved total return 
as the income requirement on the investment portfolio is relaxed; 
 
 
?    an improved profile from inclusion in Henderson's corporate branding and 
marketing initiatives; and 
 
 
?the prospect of an increase in the size of the Company with a consequential 
improvement in liquidity and the total expense ratio and an opportunity to vote 
on the continuation of the Company at an earlier date than currently provided 
for by the Articles. 
 
 
Extraordinary General Meeting and Resolutions 
 
 
The revised investment policy and the change of name require the approval of 
Shareholders. An Extraordinary General Meeting has been convened for 14 
September 2009 and will be held at the offices of Elysium Fund Management 
Limited, 2nd Floor, No. 1 Le Truchot, St Peter Port, Guernsey GY1 3JX. The 
quorum requirement for the EGM is not less than two Shareholders holding 5 per 
cent. or more of the voting rights applicable at the EGM present in person or by 
proxy (or, in the case of a corporation, by a duly appointed representative). 
 
 
At the EGM the following Resolutions will be proposed: 
 
 
?          an ordinary resolution to approve the change to the Company's 
investment policy, including the changes to the Company's benchmark index and 
gearing policy (Resolution 1 in the Notice); and 
 
?          a special resolution to approve the Company's change of name 
(Resolution 2 in the Notice). 
 
 
To be passed, Resolution 1 requires a simple majority of those voting to vote in 
favour and Resolution 2 requires a majority of not less than 75 per cent. of 
Shareholders voting to vote in favour. 
 
 
For further information please contact: 
 
 
Company 
Julian Tregoning, Chairman 
020 7818 6125 
 
Henderson 
James de Sausmarez, Head of Investment Trusts 
020 7818 3349 
 
Numis Securities 
David Benda / Nathan Brown, Corporate Broking 
020 7260 1275/1426 
 
 
The information in this announcement should be read in conjunction with the full 
text of the Circular. Capitalised terms used in this announcement shall, unless 
the context otherwise requires, bear the meaning given to them in the Circular. 
 
Copies of the Circular have been submitted to the UK Listing Authority and will 
shortly be available for inspection at the UK Listing Authority's Document 
Viewing Facility which is situated at: 
 
Financial Services Authority 
25 The North Colonnade 
Canary Wharf 
London E14 5HS 
Tel. [phone] 
 
This information is provided by RNS 
            The company news service from the London Stock Exchange 
   END 
 
 MSCBUGDIDUDGGCU