The board of the £259m Schroder UK Growth investment trust is set to terminate its relationship with the group, removing Philip Matthews as manager and handing the portfolio to Baillie Gifford's Iain McCombie and Milena Mileva.
The investment company will be rebranded under Baillie Gifford and although there will be no change to the investment objective, the portfolio will be reshaped to invest in a ‘best ideas' portfolio with approximately 40 stocks, which the board said will offer shareholders a "UK-focused, high-growth investment proposition".
In an announcement to the stock exchange this morning, the board noted a difficult period for performance.
"It is disappointing to note that the company's long-term investment performance is considerably below the board's expectation and has lagged the benchmark since inception. Further, despite its ongoing share buyback policy, the company has struggled with a persistent and wide discount to NAV.
"Accordingly, the board has concluded that, in order to provide the best investment outcome for existing investors and to position the company to attract new investors, it should make the change to implement a new, 'best ideas' investment approach managed by Baillie Gifford, an established manager of investment trusts with a long-term track record in achieving capital growth from UK equities," the statement said.
Over the past three years to 12 April the trust has returned 14.1%, compared to its benchmark the FTSE All-Share which has gained 16.5%, according to FE.
Meanwhile, the trust has been trading at discount of 12.77%.
Matthews has run the Schroder UK Growth trust since 2014 and until recently was also manager of the group's open-ended UK Alpha Plus fund before it was handed to hires from Janus Henderson Bill Casey and Nick Kissack.
The board of the trust said handing the mandate to Baillie Gifford's UK equity team will allow investors to benefit from the "experienced and well-resourced team", which currently manage £5.8bn of UK assets, a "strong track record" and a "bespoke and unique ‘best ideas' portfolio".
Baillie Gifford is one of the largest investment trust managers in the UK and currently manages eight investment trusts.
McCombie joined Baillie Gifford in 1994 and the UK equity team in 1999. He is also partner and chief of investment staff, a role he took on in 2013. In addition, he co-runs the group's Managed fund.
Mileva joined the Scottish firm in 2009 and has been an investment manager in the UK equity team since 2012.
When the necessary conditions are met and the trust has been transferred to Baillie Gifford, the annual management fee is set to be 0.5% of the trust's NAV. However, in order to offset any payment to the existing management group in respect of the termination of its appointment - which is subject to a six months' notice period - and to contribute towards the other costs of implementing the proposals (including portfolio transition costs and stamp duty), Baillie Gifford has agreed to waive its management fee to the extent of £732,000.
Meanwhile, the trust shall bear all the remaining costs associated with the proposals.
Carolan Dobson, chairman of the board, commented: "The board is delighted to announce its intention to appoint Baillie Gifford as the company's AIFM. The board is committed to providing investors with exposure to a high-quality portfolio of UK stocks that have the potential to deliver significant outperformance over the long term and we believe that Baillie Gifford is the right manager to take the company forwards.
"With its long-term, bottom-up approach, Baillie Gifford has a proven track record in managing UK equities. We believe that a bespoke UK 'best ideas' portfolio co-managed by Iain McCombie and Milena Mileva will provide a unique investment opportunity that should, over time, deliver strong returns to existing investors and serve to attract new investors to the company."
A Schroders spokesperson said: "We are naturally disappointed with the decision taken by the board and will continue to work with them to ensure a smooth transition during the notice period.
"Schroders has a strong, wide range of investment trusts covering UK and Asian equities and real estate. We remain committed to this part of the business and continue to see this as an area of future growth."
They also added Matthews remains at the firm. The spokesperson continued: "Philip Matthews is a portfolio manager within our UK and European equities business, which currently manages £51.1bn AUM. We have a depth of talent within our UK equities business and a wide range of investment styles ensuring a strong offering to our clients."
James Budden, director of retail marketing and distribution at Baillie Gifford, said: "This trust will be an exciting addition to our closed ended range. We have a successful track record in UK equities in the institutional market and the trust will become our key UK equity proposition in the retail market. Over the long term we expect to grow the trust through a combination of asset performance and share issuance into investor demand.
"It will be a 'best ideas' portfolio, highly differentiated from the benchmark and focused on providing investors with exposure to what we believe are the most exciting growth companies listed in the UK. We see the trust providing an interesting and attractive alternative for those seeking genuine active management in the UK market."
Effective from 1 August
10 new members
Strategic partnership between firms
12 months' notice