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Stephenson Harwood advises Middlefield Canadian Income fund on groundbreaking ETF transition
Law firm Stephenson Harwood LLP has acted for Middlefield Canadian Income-GBP PC on what is believed to be the investment funds industry’s first ever scheme of reconstruction and winding-up of a listed investment company offering shareholders the opportunity to rollover their investment into an actively-managed, exchange-traded fund (ETF).
Although listed investment company schemes of reconstruction are common in the UK market, with shareholders usually offered a choice between cash and/or a rollover into another investment trust or FCA authorised fund, this transaction broke new ground, with Middlefield, a Jersey protected cell, and an investment trust for UK tax purposes, offering its shareholders the option to elect for cash or to rollover their investment into a newly launched Irish incorporated, London Stock Exchange traded ETF managed by the same investment manager.
On liquidation, Middlefield had net assets of c.£160 million, with c.£80 million rolling into the new ETF.
“This transaction was a great example of the innovative approach we can take in supporting our clients,” said Alex Haynes, Head of Corporate Funds at Stephenson Harwood. “Actively-managed ETFs are a growing part of the asset management industry and, whilst there are differing views as to whether a similar strategy generates greater returns in a listed structure versus an ETF, their popularity is on the rise, meaning that boards of listed investment companies in a comparable position may consider them as a viable option for their shareholders.”
Middlefield was one of several investment companies targeted by activist US fund manager Saba Capital Management, L.P. (Saba) in recent months. Saba, a significant shareholder in Middlefield, had requisitioned the board of Middlefield seeking an opportunity to exit its investment.
Head of Corporate Funds, Alex Haynes, led the Stephenson Harwood team, with support from Managing Associate Kate Longman and Associate Karin Asai, and Tax Partner John Meehan.