Polar Capital Technology Trust Plc – Change in fee arrangements with the Manager

The Board has agreed with the Manager a package of amendments to the current arrangements. These include:  the removal of any contribution to research costs; reductions in marketing costs paid by the Company; further reduction of the base management fee above certain sizes of net asset value; a reduction in the percentage of outperformance paid to the Manager; a reduction in the cap on any such performance fees payable; and an amendment to the performance fee arrangements so as to allow the earning and carrying forward (but not the cash payment) of a fee in respect of outperformance in a year when Net Asset Value (“NAV”) has fallen or has not exceeded a previous high water mark in order better to align investment risk and reward.

·    The Board has offered consultation with larger shareholders of the Company and has engaged in helpful discussions with certain of these about the principles involved.

Current fee arrangements

·     The current base management fee is 1% of the NAV up to £800m and above £800m the base fee reduces to 0.85%. On 1 January 2018 in connection with discussions and the Company's agreement to making a 50% contribution to research costs under MiFID II regulations, a temporary third tier management fee of 0.80% on assets over £1.7bn was introduced.

·      In addition, the Manager is currently entitled to a performance fee based on:

o  15% of outperformance above the relevant Dow Jones World Technology Index (the “Benchmark”);

o  performance high water marks, so that the performance fee will only be payable if, and to the extent that, Adjusted NAV exceeds the higher of:

§ the NAV on the last day of the previous accounting period; and

§ the Adjusted NAV on the last day of a performance period in respect of which a performance fee was last paid;

§ both indexed in line with the Company's Benchmark as described above; and

o  a cap on the performance fee which can be paid by the Company in any one year (or upon termination without cause of the Investment Management Agreement (the “IMA”)) of 2% of NAV.

Amended fee arrangements

·   The Board believes that a performance fee is appropriate for an actively managed and capacity constrained approach, which is characteristic of the Manager's business model. However, as it stands, no performance fee can be paid out, or credit taken for outperformance, in a year when the NAV has fallen, or the Adjusted NAV does not exceed a previous high water mark. The Board is keen to realign the performance fee to provide an incentive to outperform in falling markets, as well as to outperform in rising ones, and to make sure the Manager does not lose that incentive in more difficult times. The Board therefore believes that the outperformance fee should be capable of being recognised in falling markets as well as in rising markets, thereby potentially rewarding the Manager for reducing risk. However, no performance fee will be paid out unless the previous high water mark conditions are met.

·     In addition, the Board and the Manager have agreed that:

o  The Manager pays all research costs from 1 January 2019. In the calendar year 2018, such costs in aggregate were approximately £447,000.

o  The performance fee participation rate is reduced from 15% of outperformance to 10%.

o  The cap on the amount which can be paid out in any one year (or upon termination of the IMA without cause) is reduced from 2% to 1%.

o  The tiering arrangements for the base management fee will be altered with effect from 1 May 2019. It has been agreed to lower the threshold for, and give permanent effect to, the third tier to £1.6bn, and to introduce a fourth tier charged at 0.70% on NAV above £2bn, as summarised in the table below. 

o  The Manager has also agreed to contribute £100,000 per annum to the Company's external marketing costs.

·    The notice period of 12 months and other key terms of the IMA remain unchanged.  Various amendments have been made to the detailed terms of the IMA to reflect changes in regulation and practice since it was last updated. The changes to the management fee, performance fee and marketing costs will become effective from 1 May 2019. The Board will continue to keep all of its costs, including management fees, under review.

·    Under the Listing Rules of the FCA, the Manager is a Related Party of the Company. The Proposals constitute a smaller related party transaction and are subject to the modified requirements for such transactions set out in Listing Rule 11.1.10. The Company has obtained written confirmation from a Sponsor in accordance with the requirements of LR 11.1.10(2)(b) that the terms of the Proposals are fair and reasonable as far as shareholders are concerned.

·    Note: the current and amended tiering arrangements for the base management fee are summarised below: