26 August 2010

BT Caps Performance Fees at $30m

Balmain Trilogy (BT) has been advised by unitholders of "material" being distributed to unitholders that BT expects to earn $80m from Performance Fees in the event that the New Strategy is approved by unitholders at the upcoming unitholder meeting.

The Performance Fee is proposed to be calculated as 20% of any increase in the net value of the Fund above $415,000,000 indexed at the RBA Cash Rate. The introduction of a Performance Fee, combined with the reduction in the base management fee by 33% from 1.5% to 1.0%, provides for better alignment of goals between the manager and the unitholders and a 'win-win' situation if BT commits significant, additional resources to 'develop' certain assets of the Fund.

The estimate of $80m is wildly inaccurate. To avoid unnecessary confusion in refuting this outrageous claim Trilogy and Balmain Trilogy wish to advise that it will be amending the Performance Fee calculations to 'cap' the maximum Performance Fee payable to Trilogy at $30m. ie. Trilogy will only ever earn a maximum Performance Fee of $30m. This 'cap' will be entrenched in the constitution, so that it cannot be removed without the consent of a special resolution of unitholders.

The figure of $30m is at the very upper range of the likely value of the Performance Fee resulting from potentially achievable improvements in the net value of the Fund (indexed at the RBA Cash Rate) which Trilogy and Balmain Trilogy believes it can generate for the Fund from its expanded role of 'development' manager of the Fund. If this capped fee of $30m were to be the outcome for BT then unitholders would receive cash returns in excess of the indexed value of the Fund of not less than $120m or 13.5 cents per share.

The base management fee will still be reduced by 33% to 1%pa (from the current 1.5%pa).

For the sake of clarity, the performance fee cap of $30m applies to any performance fees earned from the improvement of assets and/or litigation recoveries.