Literacy Capital swaps charity donations for private equity fees

Private equity investment trust Literacy Capital is cutting down on its mission of paying out charitable donations, while upping the fee paid out to management.

The only investment trust set up with a charitable objective, it has given £10m to literacy charities in the UK since it was created in 2017.

Now, the trust will up management fees from 0.9 per cent of underlying assets annually to 1.5 per cent, while charitable donations will drop from 0.9 per cent to 0.5 per cent of underlying assets.

Overall fees will increase slightly from 1.8 per cent to two per cent.

“It is somewhat unusual to see an increase in management fees, which is bucking the trend across much of the sector,” said Numis analysts Ash Nandi and Ewan Lovett-Turner.

“However, we note that Literacy Capital is already unusual for a private equity investment company, given it has only a base fee, with no performance fees.”

The trust’s share price jumped 1.7 per cent this morning on the news, and is up two per cent since the start of 2024.

Since Literacy was admitted to the specialist funds segment of the London Stock Exchange in 2021, its underlying assets per share have rocketed by 225.4 per cent, more than any other trust on the stock market in the same period.

The trust’s assets have swelled from £54m to more than £300m, and in 2023, it donated £2.8m to charities compared to just £532,000 given in 2018.

Literacy Capital’s donations

A major beneficiary of Literacy Capital’s donations has been Bookmark Reading Charity, and the trust cited the charity’s “increasingly professional and effective fundraising operation of its own” as a reason for cutting fees.

Shareholders holding about 20 per cent of shares were consulted about the changes and backed the decision.

The trust also explained the hike in fees as being needed to manage the growing portfolio, now comprising 19 businesses.

It will use the cash to invest in data, technology and back office functions, noting its small business focus implies that the level of support required is higher than for typical private equity investments.

“We are immensely proud of the contributions Literacy Capital has made to charitable causes since inception over seven years ago, witnessing first-hand the significant difference that donations have made to children from disadvantaged backgrounds, through the hard work of Bookmark and other charities,” director Richard Pindar said.

“Due to the success of Literacy Capital and its growth in net assets, we are delighted that we can continue to provide meaningful financial contributions to support the vital efforts of UK literacy charities, whilst maintaining our capacity to invest in private businesses where we see a clear route to creating additional value.”