Portfolio rationalization: PVML offers home for orphan equities
UK boutique warehouses and bulks up fund managers' troublesome unwanted shares, offering a return within three years
A universal problem facing fund managers is how to dispose in a cost-efficient way of underperforming and unmarketable stocks that clog up their portfolios. Ideally, they want to do this without making losses for their investors. At present, managers have little option but to dump the unwanted stock through a dealer – the problem being that the dealer has little incentive to get the best price for the stock. One UK boutique, however, has an answer. Progressive Value Management (PVML) takes the holdings from the fund manager at mid-market price, and puts them into a Guernsey-registered fund. In exchange for the holdings, PVML issues the fund manager with shares in the fund. It then sets a timetable of two to three years to liquidate the fund, returning the cash to investors as the stocks are sold.
"Often these stocks can be a significant proportion of a portfolio by number, but under 5% in terms of value. It's not just small and fledgling companies that have failed to grow. It can be larger companies whose market capitalization has decreased," explains Robert Legget, co-founder of PVML.
"It's therefore not in the interest of the fund managers to spend time evaluating these companies, attending AGMs and trying to bolster performance.