Investors force out five EFM directors

There was blood on the walls of the boardroom at Edinburgh Fund Managers yesterday, when pressure from shareholders forced out its chief executive, Iain Watt, and pushed its non-executive directors to resign.

Shareholders in EFM, whose stock has fallen as much as 80 per cent this year after struggling to recover from the loss of its biggest management mandate in July, have been demanding answers from the board, which has failed to turn around the sharp decline in EFM's fortunes.

The company's four non-executive directors, John Wright, Angus Gossart, Donald MacDonald and Johnnie Blair yesterday resigned from the company, saying the pressure from shareholders had become too much to bear and their positions were no longer tenable.

The executive directors with the backing of shareholders – the largest of whom is Hermes, the pension fund manager – then moved to strike out Mr Watt, who left immediately.

Hermes tried to buy out the 70 per cent of EFM it does not own earlier this year but could not agree a price. There was uncertainty over whether the £1bn Edinburgh Investment Trust, which accounts for a third of EFM's funds under management, would move its money elsewhere, which lowered what Hermes was willing to pay.

The board of the investment trust sacked EFM in July, leaving a gaping hole in its funds under management. It is also set to lose the £700m it manages for the Bank of Scotland after its merger with Halifax, and has some ailing split-capital investment trusts. Mr Watt's failure to stem the tide against EFM meant he lost the confidence of shareholders and staff. "The company has been in limbo since the failed Hermes takeover. Its problem is that it wants to be a generalist fund manager, but it is just too small. Most people, including staff, will see this as very positive news," one Edinburgh source said.

Tony Watson, the chief executive of Hermes, yesterday ruled out making a new bid for the group, but said he was pleased with the board's action.

Anne Richards, the chief investment officer, and Rod MacRae, the chief operating officer, have taken over as joint managing directors. The pair, EFM's remaining executives after Mr Watt's departure, take on the roles in addition to their existing positions. The company said they were taking over "with the support and encouragement of major shareholders, including Hermes" and the backing of EFM's senior managers. Shares in EFM fell 1.5p to 147.5p.