7th November 2025
Our recent Crescendo called Balancing Act (link here) focussed on the alternative investment trusts because there is an increased acknowledgement that while their shares trade at wide discounts, Boards and shareholders have an important decision to make in the not too distant future. Does a portfolio of wasting assets like renewable infrastructure carry on the relentless buyback route that will see its NAV and dividend profile erode over time, or should they halt buybacks and reinvest in the portfolio to replace the maturing assets further down the line?
But conventional trusts also face a balancing act, albeit a different type, given they invest in liquid assets that can be recycled on a daily basis. The challenge for these boards however is linked to relevancy, scale and performance. There have been numerous mergers within the trust sector over recent years and many boards have been prepared to forgo their own existence in exchange for delivering the right shareholder outcome via a merger with a peer. We appreciate that it is not easy balancing the needs and wishes of a disparate shareholder register, especially if ‘activist’ investors have appeared and will have a shorter term investment horizon than other shareholders (although we view activists as a necessary and healthy part of the ecosystem – see our blog on this here). Ongoing shareholder engagement and considerate messaging around strategic options are therefore really important.
With that in mind, we were perplexed by the latest twist in the Bellevue Healthcare Trust (BBH) story. We are not shareholders (although have been in the past) so write this with no axe to grind. On 30/10/25 the board announced the outcome of a strategic review instigated in August 2025 that followed a long period of underperformance from the incumbent management team. We applaud the Board for recognising that something needed to change. However, if we were still shareholders we would likely vote against this proposal based on the current level of detail (it is subject to a shareholder vote and further details in a full circular to follow).
The headline of switching to another healthcare manager with a strong track record makes perfect sense. However, as with all things, the devil is in the detail. The proposed new fund is no ordinary healthcare fund. The mandate will switch to a long/short healthcare fund that the Board says has a “proven track record”. However, that track record only goes back to June 2023 – less than 2 ½ years. Yes the numbers are impressive at +70.8% gross vs 2.8% from the benchmark (01/07/2023 to 30/09/2025), but any fund analyst will know that this is too short a period in which to form an opinion. We own funds that have gone through periods of underperformance longer than 2 ½ years, but we still regard them as good managers. In fact, any manager performing that well over a short period of time will make us wonder whether the performance is repeatable due to skill or due to style or other factors.
Another interesting part of the proposal is the introduction of a base fee of 0.95% and a 15% performance fee based on returns above SONIA with no cap on fees as far as we can tell from the announcement. This new fund generated a gross 42.7% return over the last 12 months which, according to our calculations, would have generated a c.6.6% management fee (42.7% – 4% * 15% + 0.95%). We are not against performance fees and own a few funds within our funds that have them, but they have to be appropriately structured. We would argue that SONIA is an inappropriate benchmark for an asset class that can be volatile and is likely to generate much higher returns than SONIA.
That decision in December 2024 to scrap the redemption facility was quickly reversed within a few days after shareholders expressed their dissatisfaction. In April a zero discount policy was introduced achieved via regular share buybacks. In August when the strategy review was announced, the annual redemption facility was cancelled. The final part of this latest proposal is to scrap that recently introduced zero discount policy and replace it with quarterly redemptions of up to 15% of issued share capital.
A lot has happened over the past couple of years, and the numerous changes of policy and the strategic review reflects a board under pressure to deliver a good outcome for shareholders after a protracted period of sub-par performance. However, it also suggests some denial as to the ultimate fate of the trust. The sheer scale of the buybacks required to maintain the zero discount in the face of shareholder selling pressure sends a clear message that demand for the trust is declining. In today’s world a market cap of £150m is widely regarded as sub-scale. Whilst the Board will hope to grow it again under new management with the new mandate, that seems a tough ask when shareholders in BBH that still want exposure to healthcare can easily switch to another broader, long-only healthcare trust or a pure biotechnology trust on a wider discount and cheaper management fees. Did anyone stop and think whether we need 7 investment trusts in the AIC Biotechnology and Healthcare Sector? Healthcare represents 9% of the MSCI World Index versus Technology, which is triple the size at 27%, yet is represented by just 3 trusts via the AIC Technology Sector. We would therefore hope that a merger with a peer was considered and wonder why dissenting shareholders aren’t being given an option to be given their money back at NAV less costs. Shareholders will want to know why the Board thinks the current proposal is a superior option.
Daniel Lockyer – Senior Fund Manager
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For professional advisers only. This article is issued by Hawksmoor Fund Managers which is a trading name of Hawksmoor Investment Management (“Hawksmoor”). Hawksmoor is authorised and regulated by the Financial Conduct Authority. Hawksmoor’s registered office is 2nd Floor Stratus House, Emperor Way, Exeter Business Park, Exeter, Devon EX1 3QS. Company Number: 6307442. This document does not constitute an offer or invitation to any person, nor should its content be interpreted as investment or tax advice for which you should consult your financial adviser and/or accountant. The information and opinions it contains have been compiled or arrived at from sources believed to be reliable at the time and are given in good faith, but no representation is made as to their accuracy, completeness or correctness. Any opinion expressed in this document, whether in general or both on the performance of individual securities and in a wider economic context, represents the views of Hawksmoor at the time of preparation and may be subject to change. Past performance is not a guide to future performance. The value of an investment and any income from it can fall as well as rise as a result of market and currency fluctuations. You may not get back the amount you originally invested. FPC25571.
