Matthew Smith Ruth Liew – Australian Financial Review – May 13, 2015
AMP’s listed China Growth fund invests in China A shares listed on China’s Shanghai or Shenzhen stock exchanges.
A UK-based activist hedge fund with links to several senior figures in the Australian funds management sector is agitating for a shake up within an AMP Capital listed investment company.
Metage Capital penned an open letter to the board of AMP Capital Funds Management, the entity responsible for the group’s listed China Growth Fund, highlighting the “unacceptable discount” the fund trades at compared to the value of its underlying assets, and its expensive management fees.
AMP’s listed China Growth fund, which invests in China A shares listed on China’s Shanghai or Shenzhen stock exchanges, was trading at a 25 per cent discount to its net tangible assets (NTA) on May 4. The fund charges a 1.65 per cent management expense ratio, making it one of the the most expensive ASX-listed LICs, next to Hunter Hall’s Global Value fund. It also charges 20 per cent on returns above its benchmark, the S&P/CITIC 300 Total Return index.
Metage is calling for the fund to undertake capital management including share buybacks or tender offers. Such actions would shrink the size of the fund in line with investor demand and better align the interests of the fund’s board with investors, Metage said.
“We are simply holding the mirror up to the board, we are deeply disappointed by the corporate governance at this fund to date and we think investors deserve a far better go than they have had,” said Miles Staude, investment manager and head of Metage Capital Management.
Very Serious Issue
AMP Capital responded in a statement on Wednesday, saying the funds management business takes the issue of the discount to net asset value very seriously.
“As part of our fund governance [AMP has] been continuing to investigate ways to sustainably close the discount that are appropriate for the fund and in unitholders’ best interests,” the statement said.
Select Investment Partners, chief investment officer Dominic McCormick, said he has been disappointed that AMP Capital has not been able to enhance value or narrow the discount gap during the recent China A Shares rally. Select owns 4.6 per cent of the stock.
For the period to the end of March the fund produced a 120.3 per cent net return despite maintaining one of the highest NTA discounts on the ASX.
Investment firm Bell Potter pointed out in an investment note on Wednesday, Chinese government policy aimed at encouraging a transition of household investment from property to the equity market has seen stunning results over the last 12 months. Bell Potter recommended AMP’s China Capital Growth fund as a way to get Chinese equity exposure is via the ASX.
“Discounts [between the value of the shares and the fund’s NTA] tend to narrow as a market rallies, but that doesn’t seem to be the case here,” Mr McCormick said, adding he would support the manager buying back shares.
“Buybacks are actually accretive and can work to narrow the NTA gap,” he said.
Metage’s activist play appears to be in line with the script from a similar campaign. In 2012, the UK hedge fund teamed up with deep value Hong Kong-based funds manager, LIM Advisers, to push the Singapore exchange-listed Macquarie International Infrastructure Fund to a special shareholder meeting in a bid to gain seats on the fund’s board. The Macquarie-backed fund was later wound up following a review by an independent adviser.
LIM Advisors has a 10 per cent stake in AMP’s China Growth Fund; AMP Life has a more than 30 per cent stake in the listed fund, according to Bloomberg.
The Cayman Islands-incorporated Metage, which also separately manages an ASX-listed Global Value fund, lists former Colonial First State CEO Chris Cuffe and WAM Capital’s Geoff Wilson on its Global Value Fund board.
Mr Wilson, who is responsible for numerous LICs listed on the ASX under the WAM brand, said he was not involved in the Metage letter to AMP. He said activism between managers within the ASX LIC community is not common.
Open letter followed closed correspondence
“I haven’t seen an open letter sent from one manager of an LIC to another manager of an LIC before,” Mr Wilson said.
It is understood the Metage letter, which was distributed by online financial services community Livewire, was published following numerous closed letters from Metage to AMP Capital regarding the performance of the fund.
AGF was ranked within the 10 worst performing LICs on the ASX out of 65 funds during April, according to the ASX’s monthly Spotlight on Listed Investments and Absolute Return Funds report. The fund also had the second highest trading volume among LICs on the ASX during the month of April. AGF’s fees make it the second most expensive fund within the LIC international shares category, according to the ASX.
The Metage activism comes on the back of mooted activist efforts within AMP Limited’s broader business, in which a group of investors led by BT Australia chief executive Chris Corrigan was last year building a shareholding in the more than $21 billion market capitalised company. The investor group reportedly highlighted excessive costs as motivation to build a shareholding and lobby for a board seat, but the plan has since been abandoned.
Miles Staude of Staude Capital Limited in London is the Portfolio Manager at the Global Value Fund (ASX:GVF). This article is the opinion of the writer and does not consider the circumstances of any individual. Mirabella Financial Services LLP is the investment manager of the Global Value Fund and has seconded the investment team at Staude Capital to manage the Global Value Fund.