THE board of the £671 million Scottish Investment Trust, founded in 1887, has agreed a deal which will end the company’s long history as an independent, self-managed fund, a transaction its lead manager said brought “mixed emotions”.

Heads of terms have been agreed by the board with JPMorgan Global Growth & Income and this fund’s manager, JPMorgan Asset Management, for a combination of Scottish Investment Trust’s assets with JGGI. This deal will effectively see the venerable Edinburgh-based trust’s assets absorbed into JGGI.

Alasdair McKinnon, lead manager of Scottish Investment Trust, said in a post on social media platform LinkedIn yesterday: “Our announcement of a combination with JPMorgan Global Growth & Income heralds a new era for the Scottish Investment Trust.

“It does, of course, bring mixed emotions. The self-managed investment trust model was created in the 19th century and we were almost unique in keeping this going. In recent years we’ve attempted to preserve the very best elements of this model but, at the same time, make the essential changes to ensure the company was relevant for the modern era. However, the best option now is that the company adopts a more conventional structure.”

All shareholders in Scottish Investment Trust, which employs 10 people, will receive new shares in JGGI under the terms of the deal, which was announced yesterday. The Scottish trust’s home at 6 Albyn Place, which is valued in the accounts at £2.025m, will be sold off.

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Scottish Investment Trust, which said it had received a “large number” of proposals after inviting these in June, declined to comment when asked if its employees would be made redundant if the JGGI deal goes ahead.

Outlining the structure of the deal, which is subject to shareholder approval, the Scottish trust said: “The transaction will be effected by way of a scheme of reconstruction of the company under section 110 of the Insolvency Act 1986, resulting in the voluntary liquidation of the company.”

Shares in Scottish Investment Trust jumped by more than eight per cent yesterday, closing 62p higher at 815p.

The trust announced in June that it was inviting proposals from external asset managers following a five-year period in which it had underperformed a key global equities index.

Scottish Investment Trust noted yesterday that, as at Monday’s close, JGGI’s shares were valued at a 2.7% premium to net asset value.

It added: “In contrast, SCIN (Scottish Investment Trust) shares traded at an average discount to NAV…of 10.4% in the three months preceding the announcement of the company’s strategic review.”

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James Will, chairman of Scottish Investment Trust, said: “The board undertook a lengthy and robust review process and considered a wide range of options for the company. Ultimately, the proposal to combine The Scottish Investment Trust with JPMorgan Global Growth & Income was considered the most compelling outcome for shareholders, allowing for the creation of a company with an enlarged net asset base of in excess of £1.2 billion.”

He added: “Our two companies were both launched in 1887, and this combination will reflect both of their proud histories within a single vehicle with relevance for the investment market place today. JGGI offers a style-agnostic total return approach that has delivered index-beating performance, and it distributes an attractive level of dividend to investors. The board would like to place on record its deep gratitude for the dedication and professionalism of the employees of The Scottish Investment Trust, including during the period of the review.”

Mr McKinnon said on LinkedIn: “There is a business school cliché that all firms need to ‘get big, get niche or get out’. We adopted a niche because it played to our strength as a single product, self-managed company. We thought that, through a full investment cycle, a contrarian approach would work as well, if not better, than any other investment style.

“Overall our results to date have not been what we hoped for even though the share price has shown a healthy increase and we’ve paid a good dividend. Some have argued that it’s too early to tell if this is the right time to make a change given that investment cycles tend to be very long. In fact, some of you have got in touch to point out that such changes often mark the nadir for an investment style. These are noteworthy points but the most important thing is that we do the right thing for the company.”

Providing further details of the transaction, including plans for a deal with an insurer for its defined benefit pension scheme, the Scottish trust said: “The company’s property at 6 Albyn Place, Edinburgh, The Scottish Investment Trust pension scheme and the company’s wholly owned subsidiary (SIT Savings) will not transfer to JGGI, but will instead remain with the liquidator, along with sufficient assets to meet SCIN’s liabilities.”

It added: “It is anticipated that members of the defined benefit pension scheme, which has been closed to new members since 2015, will have their benefits under the pension scheme fully secured through a buy-in and buy-out with an insurer. Sufficient capital shall remain with the liquidator to ensure that this can be achieved. As part of the liquidation process, the property will be sold and SIT Savings will be liquidated. Following the completion of these processes, any excess of funds remaining in the liquidation pool after all liabilities have been settled will be returned to SCIN shareholders.”

The Edinburgh-based trust said back in June that the external proposals being sought would be considered alongside current arrangements. The trust noted then that it had adopted a “high conviction, global contrarian investment approach” in 2015.

Announcing the review of arrangements in June, the trust had declared there was “no certainty” any changes would result, with the board noting “strong recent short-term performance”. However, it had added: “The board’s view was that a period of at least five years would be required to evaluate the company’s returns under this mandate. The company does not have a formal benchmark but, by way of comparison, the company’s NAV (net asset value) total return has underperformed the sterling total return of the MSCI All Country World Index over the five years ended April 30, 2021.”

Scottish Investment Trust said yesterday: “The board invited proposals from established fund management groups with the experience of managing listed closed-ended funds...As part of this thorough exercise, consideration was given in turn to retaining the company’s internal investment management structure; to appointing an external third party manager; and to effecting a combination with another investment trust.”