Phaunos fulfils threat to get shot of fund manager

Phaunos Timber Fund fulfilled a threat to get shot of the company which has managed it since it started in 2006, taking the role in-house in a move which was welcomed by investors.

The fund, which has timberland portfolio worth more than $450m, said that it "by mutual consent" agreed to end its contract with FourWinds Capital Management.

The move realises a threat by Phaunos chairman Sir Henry Studholme in April to serve notice on FourWinds by the end of 2013, to "allow the widest possible range of options" over managing the fund "to be evaluated and executed".

Phaunos revealed on Monday that it is to take management in-house, through a subsidiary, Phaunos Boston, led by a former director of timber operations at FourWinds, Mason Browne.

It has agreed to pay FourWinds, which was entitled to a 36-month notice period, $4.2m in compensation.

Persistent discount

Under FourWinds's management, Phaunos built up a portfolio ranging from pine plantations in China and New Zealand to a timber harvesting company in Uruguay, and has sold some of its investments for considerable gains.

Phaunos sold some Uruguay plantations last year for $8.6m, a premium of 41% to book value, achieving a smaller gain on a sale in Jiangxi, in eastern China.

However, the price of its shares, which are listed in London, has shown a persistent, and large, discount to book value.

Since its inception seven years ago, Phaunos "has experienced the costs of entering new markets, the US housing collapse and considerable upheaval in financial and in timber markets," Sir Henry said in April.

Even after a 3.6% rise to $0.50 in its stock price on Monday, its shares were trading at a 41% discount to net asset value.

FourWinds representatives Kimberley Tara and Liane Luke quit the Phaunos board last year, when Sir Henry said that it was "no longer best practice for an investment manager to appoint directors to an investment company board".

'Significant cost saving'

Phaunos said that it would save $2.5m over the next year thanks to taking management in-house, including the cost of establishing Phaunos Boston, and a consultancy agreement it has set up with Stafford Timberland, which manages $1.4bn in timber assets.

"Further cost savings are expected in future years," the fund said.

Investment management fees over the past five years have topped $40m, according to London broker VSA Capital, which estimated that FourWinds would have about $7.0m in fees a year.

"With [Monday's] agreement taking immediate effect for a cost of just $4.2m this represents a significant cost saving," VSA analyst Edward Hugo said, terming the end of the agreement with FourWinds "an extremely positive announcement" and a "major achievement for Sir Harry".

"In addition, this agreement removes the threat of a performance fee [to FourWinds] had PTF's net asset value risen significantly over the next three years."

VSA restated a "buy" rating on Phaunos shares, with a target price of $0.73.

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