To be managed by Judith MacKenzie, who runs the firm’s flagship UK Micro-Cap Growth Fund, the trust is aimed at delivering “returns associated with private equity investing coupled with the transparency of investing in listed companies”.
The trust will hold between 3% and 25% in the equity of any one company where MacKenzie and her team - fund managers Alyx Wood and James Lynch, and investment manager Nicholas Hawthorn - believe that the business is significantly undervalued.
Over an investment horizon of three to seven years, the mangers aim to unlock shareholder value through proactive engagement with management teams.
Various ‘strategic’ mechanisms Downing has used in the past include: restructuring boards, aligning incentive packages, recapitalising, and funding acquisitions for growth and/or synergies.
“Our investment process should enable the trust to mitigate much of the perceived ‘risk’ in quoted smaller companies while the closed-ended structure ensures that the interests and investment horizons of both investors and the fund manager are closely aligned,” MacKenzie said.
“Companies with a market cap of under £150m – and particularly those under £50m - lack analyst coverage and institutional attention which drives pricing inefficiency and, therefore, attractive valuations.
“There is a wider universe of micro-cap companies, therefore, we believe, there is a wider opportunity compared to those companies with larger market capitalisations, as micro-cap companies tend to better value.”
The trust has an issue price of 100p per share, and initial NAV of 98p per share. The annual management fee is 1% of net assets.