The duo have their work cut out to lift the performance of the trust of funds, which focuses on both listed and unlisted investment vehicles. They won the mandate of the trust – which was previously called SVM Global – in February this year.
It has underperformed against its FTSE World index benchmark over one, three, five and 10 years.
The most notable underperformance has come over five years, during which time it has lost 43.93 per cent compared with a positive return of 42.56 per cent from the index.
Performance of trust vs index over 5yrs
Source: FE Analytics
However, Elliott believes the duo have the ability and the experience to save the trust and justify its existence before a shareholder continuation vote in December 2014.
"We rate the management team highly," he said. "Ian Barrass has an excellent track record running the Henderson Private Equity Investment Trust, which is starting to wind down because the majority of the portfolio has been realised."
"That experience does have a relationship with the job he has to do now, as a high proportion of Henderson Value Trust’s portfolio is in unlisted holdings, so he will have to decide whether to retain or exit those positions. In that respect, his experience will be invaluable."
Our data shows that with Barrass at the helm, the Henderson Private Equity Investment Trust is the second-best performing portfolio in the IT Private Equity sector over three years, with returns of 177.54 per cent, beating the average fund by 125 percentage points.
Performance of trust vs sector over 3yrs
Source: FE Analytics
Elliott continued: "Paul Craig will also bring a lot to the trust. He is a very experienced investor in closed-ended funds and has been involved in the sector for a long time."
As well as running Henderson Value Trust, Craig runs a number of open-ended funds that invest in trusts – one of which is the Henderson Global Strategic Capital fund. Over three years, this fund has returned 25.24 per cent, meaning it has beaten the IMA Flexible Investment sector.
Henderson Value Trust is currently trading on a discount of 15.2 per cent, one of the widest figures in the IT Global Growth sector.
Barrass (pictured) says that the poor performance of the trust is down to a combination of poor stockpicking and accounting.
"The SVM Global fund had had a very difficult few years, which had been down to specific holdings within the portfolio. However, issues arose around the previous management teams' accounting methods and valuations, which led to a quite significant write-down in the NAV," he said. The management team, along with auditors Ernst & Young, has undertaken a huge valuation review of the portfolio’s holdings and Elliott is confident investors will not see any further write-downs.
"The Henderson management team has clearly been busy since it took responsibility for the portfolio," Elliott said.
"They observed the quality of the portfolio is mixed and we would expect significant changes over the next year. However, we are confident that, following the valuation reviews performed by both Henderson and auditors, there should not be any further downward valuations."
There were certainly some eyebrow-raising unlisted assets in the portfolio. Three of the most illiquid – which were subsequently written down – were emerging market property vehicles. These were the Buena Vista Latin American fund, which is based in Mexico, the Cuban prime real estate company CEIBA Investments Limited and Croatian IO Adrio Limited.
Barrass says that there has also been significant "value attrition" since 2007, as the trust was heavily exposed to both the property market and the clean-tech/environmental sectors. However, he says that he and Craig are in the process of re-adjusting the portfolio.
"We have got to improve the manager selection; the trust has had significant specialist weightings to metals and mining, and currently has a 17 per cent weighting to Russia, which were both areas of the market that have taken a pounding," he said.
The portfolio consists of 59 holdings, though 15 of these are in a "run-off or harvesting mode".
The managers say some of the initial portfolio changes will involve reducing the exposure to metal and mining, and Russia, and building a higher allocation to the US and Asia.
The team will reduce its high exposure to the UK private equity sector and instead look for more globally focused vehicles.
Barrass says he is also looking to add infrastructure trusts to the portfolio.
"We would like to invest in more yielding holdings, so we will look to infrastructure trusts, which currently have no representation in the portfolio; however we would want those holdings for total return purposes and not to distribute yield," he said.
He adds that one of the team’s biggest priorities is to bring in the discount using a discount control mechanism (DCM).
"With the continuation vote coming up in 18 months or so, we have to try to improve the performance and and generate attractive returns. At this point, buying shares back is not the right way to go," he said.
"Improved performance will be the main catalyst for closing the discount and we don’t want to reduce the size of the trust, we want to focus on growth," he added.
Although Elliott says that the new management team has the ability to turn around the trust’s performance, he says the proof of the pudding will be in the eating.
"The clear priority in the medium-term is to improve performance and thereby justify the fund’s existence," Elliott said.
"The mandate is specialist but Paul Craig made a strong case for a portfolio of esoteric funds, providing access to value ideas for those who are restrained by liquidity or mandate. In our view, the trust now represents a decent each-way bet given its current discount."
"However, it has to perform or it will struggle to survive its continuation vote in December 2014," he added.
Henderson Value Trust has ongoing charges of 0.85 per cent and does not use gearing.
