TIDMCLC
RNS Number : 2692G
Calculus VCT PLC
17 July 2023
Publication of Circular and Notice of General Meeting
Recommended Proposals to approve entry into a new
Performance Incentive Scheme with Calculus Capital Limited
("Related Party Transaction")
17 July 2023
Calculus VCT plc announces that a circular relating to a
proposed new Performance Incentive Agreement, which is a related
party transaction under the Listing Rules, has been approved by the
Financial Conduct Authority and is being published today.
A copy of the Circular will be available for download on the
Company's website
https://calculuscapital.com/investment-opportunities/calculus-vct/investor-information/
from the date of this announcement up to and including the date of
the General Meeting and for the duration of the General
Meeting.
In addition, a copy of the Circular will shortly be submitted to
the National Storage Mechanism and will be available for inspection
at https://data.fca.org.uk/#/nsm/nationalstoragemechanism .
A notice convening the General Meeting is set out at the end of
the Circular which proposes a single Resolution to approve the
Related Party Transaction. The General Meeting will be held
immediately following the conclusion of the Company's Annual
General Meeting scheduled for 12.00 p.m. on 21 August 2023 at 1
Warwick, 1 Warwick Street, London W1B 5LR.
The Circular is expected to be posted to Shareholders by 28 July
2023 and extracts from the Chairman's letter to Shareholders are
set out below.
Enquiries:
Calculus Capital Limited, Manager
020 7493 4940
Madeleine Ingram/Francesca Rayneau
Beaumont Cornish Limited, Sponsor
020 7628 3396
Roland Cornish
Recommended proposals to enter into a new performance incentive
agreement with the Company's manager, Calculus Capital Limited
("Calculus Capital")
The Directors' Report contained in the Company's published
annual accounts for the year ended 28 February 2022 referred to the
board of the Company ("the Board ") having recognised that the
existing performance fee arrangements with the Company's manager,
Calculus Capital, were no longer compatible with the current
strategy of the Company. The Board resolved to undertake a review
of the existing arrangements, and comparable arrangements within
the VCT market, and communicate any proposed changes in due
course.
Following the conclusion of that process, I am writing to you to
seek Shareholders' approval for a new performance incentive
agreement with Calculus Capital, to replace the existing incentive
agreement .
As further set out below, it is proposed that the existing
arrangements, which permit incentive payments to be made only
following the payment of dividends totalling 105p per Ordinary
Share, be replaced with an incentive scheme based instead on the
achievement of realised gains made through the sale of investments
by the Company. For incentive payments to become due under the
proposed arrangements, two total return hurdles must also be
satisfied and no payment may be made to the extent it would cause
either of those hurdles not to be met.
Description of existing performance incentive arrangements
Under the current arrangements, Calculus Capital would be
entitled to receive a performance incentive payment equal to 20% of
distributions made by the Company to Shareholders once those
Shareholders have received distributions equal to 105p per share.
Distributions for these purposes are defined as dividends paid in
cash and the consideration paid by the Company, on a per share
basis, where it buys back shares from its Shareholders.
These arrangements were conceived when the Company was in its
early stages as a 'structured products' VCT under the joint
management of Investec Structured Products as well as Calculus
Capital and operating in a very different market, regulatory
environment and with a different strategy and return profile. No
performance incentive has been paid historically under these
arrangements and the Board do not consider any payment to be
achievable in the foreseeable future.
Description of proposed new performance incentive
arrangements
Under the proposed new arrangements, the incentive fees are only
payable to Calculus Capital if:
-- the Company's cumulative realised investment gains are
greater than its cumulative realised investment losses since
inception;
-- the total return to Shareholders, made up of net asset value
(" NAV ") per share and dividends per share paid, ("the Total
Return") is positive over a rolling five-year performance period;
and
-- the Total Return for the year preceding any payment has
increased by at least 4.5% from the NAV per share at the end of the
previous year.
If all three conditions are met, a performance fee equal to 20%
of the excess realised gains (less previous performance incentive
payments made) is payable to Calculus Capital . Excess gains are
calculated simply by subtracting realised losses made on the
disposal or write off of investments by the Company from realised
gains made on the disposal of investments by the Company.
By way of illustration, if the new performance incentive
arrangements were to have been in place as at the date of this
document, the Company would have achieved excess cumulative
realised gains of GBP326,997. However, this would not have resulted
in an initial performance payment to Calculus Capital of GBP65,400
(ie 20% for such excess realised gains) being due in respect of the
period ended on 28 February 2023 since both of the Total Return
conditions set out above were not met at the relevant times.
Rationale for the revised performance incentive arrangements
The existing performance incentive fee arrangement has been
substantively unchanged since 2010, having been conceived of when
the Company was in its first years of operation, with a co-manager
in the form of Investec Structured Products, and in a period when
the regulatory landscape for VCTs was markedly different.
The purpose of any performance fee arrangement with a fund
manager is to incentivise that manager to perform, to enable it to
attract and retain key staff and to align the interests of the
manager with those of investors. The existing arrangements are not
achieving those goals and so it is the opinion of the Board that
they need to be refreshed.
With that in mind, we have surveyed the market for other
arrangements which we believe are well structured to achieve the
above aims and consulted with leading market commentators on what
they consider to be optimal in terms of providing protection and
value for money for shareholders.
A key element of the proposed new arrangements is that
performance incentive fees would only be paid out based on realised
gains made on disposals. A common weakness of certain of the VCT
performance fee structures we reviewed, in the Board's opinion, is
where these are based simply upon unrealised "paper" gains.
By combining a requirement for overall positive returns, the
achievement of a 4.5% value hurdle in the lead up to any
calculation, and the important requirement that fees are only then
payable where actual, realised gains exceed realised losses, the
Board believe that the proposed arrangements ensure shareholders'
position is well protected while allowing the manager to be
appropriately incentivised.
Related Party Transaction
As Calculus Capital is the investment manager of the Company,
the entry into the new performance incentive arrangements described
above will constitute a related party transaction under the listing
rules of the FCA (the " Listing Rules ") (the "Related Party
Transaction"). Accordingly, the approval of Shareholders for the
Company's entry into the Related Party Transaction is required in
accordance with Listing Rule 11.1.7(3).
John Glencross, as the chief executive of Calculus Capital and a
non-independent director, did not take part in the Board's
consideration of the proposed new arrangements, nor vote on the
Board's decision to put the Related Party Transaction to
Shareholders for their approval at the General Meeting.
A notice convening the General Meeting is set out at the end of
this document which proposes a single Resolution to approve the
Related Party Transaction. The General Meeting will be held
immediately following the conclusion of the Company's Annual
General Meeting scheduled for 12.00 p.m. on 21 August 2023 at 1
Warwick, 1 Warwick Street, London W1B 5LR.
The Board, which has been so advised by Beaumont Cornish
Limited, the Company's Sponsor, considers the Related Party
Transaction to be fair and reasonable insofar as the Company's
shareholders are concerned. In providing its advice to the Board,
Beaumont Cornish Limited has taken into account the Board's
commercial assessment of the effects of Related Party
Transaction.
Risk factors relating to the Related Party Transaction
If the Related Party Transaction is not approved by
Shareholders, the existing performance incentive arrangements will
continue. As noted above, the Board and Calculus Capital consider
that it may be more difficult to recruit, retain and incentivise
quality investment management personnel without an appropriate
incentive scheme in place. This may affect the performance of
Calculus Capital, which may in turn impact the performance of the
Company's portfolio and, thereby, returns to Shareholders, as the
ability to pay performance incentive fees is an important component
of management returns payable to an investment manager and,
accordingly, an investment executive's remuneration package for
managing a venture capital portfolio.
Recommendations
The Board are of the opinion that the Related Party Transaction
to be proposed at the General Meeting is in the best interests of
the Shareholders as a whole and unanimously recommends that you
vote in favour of the Resolution.
The Board, with only the exception of John Glencross who is
ineligible to vote his shares, intend to vote, in respect of their
own holdings of 37,455 Ordinary Shares (representing 0.05% of the
voting rights in the Company), in favour of the Resolution.
Under the Listing Rules, Calculus Capital as a related party is
not entitled to vote on the Resolution to be proposed at the
General Meeting to approve the Related Party Transaction. Calculus
Capital does not hold any shares in the Company and has undertaken
to take all reasonable steps to ensure that its associates shall
not vote on the Resolution and to include procuring undertakings
not to vote from its employees.
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END
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July 17, 2023 10:04 ET (14:04 GMT)
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