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Permal proposed to replace FRM as adviser to Dexion Trading

The board of London-listed hedge fund Dexion Trading is to place before the fund's shareholders a proposal that its sub-manager, FRM Investment Management, should be replaced by Legg Mason subsidiary Permal from October 1, in a bid to resolve a significant and long-standing discount of the fund's share price to net asset value.

The Dexion Trading board says it has consulted major shareholders in the fund as well as its manager, Dexion Capital (Guernsey), about the proposal. If a sufficient number of shareholders opt to liquidate their holdings rather than make the switch to a new manager, Dexion may consider other alternative such as a winding-up.

The share price of Dexion Trading, which was listed on the London Stock Exchange in November 2004, set a new high of 110.5p on June 12 following the announcement, nut previously the shares had been trading at a discount to NAV or more than 5 per cent.

Terms have already been agreed on the proposed advisory arrangements with Permal, which would see Dexion Trading's investment policy brought into line with that of the USD8bn Permal FX Financial & Futures, which invests in underlying hedge funds seeking to implement trading strategies in US and international currency, futures, options, forward and other derivative markets.

Permal was established in the mid-1970s as the US alternative investments arm of French industrial and financial group Worms & Cie, now known as Sequana Capital. Legg Mason took a controlling stake in Permal, which has more than USD30bn in assets under management, in November 2005.

Dexion Trading says shareholders can redeem all or part of their investment for cash at a price per share which reflects the prevailing NAV less an appropriate proportion of the costs, capped at 1.5 per cent of NAV.

If despite efforts to raise fresh capital the aggregate assets represented by existing and new shareholders is less than GBP50m, the board may decide not to proceed with the change of investment adviser and instead consider alternative reconstruction or winding up proposals.
The Dexion Trading board says the timing of the change depends upon the liquidation of the fund's existing assets required to fund redemptions and to launch the new investment policy. FRM, which will waive any right to management and performance fees arising after September 30, currently believes that at least than 95 per cent of the current portfolio can be liquidated by then. A circular containing full details of the proposals is promised to shareholders in August.

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