Listed investment firms set to offer billions in deals to investors

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A strong 12-month run for some fund managers – including Regal which has so far returned over 100% and L1 Capital 81% – means there may be a growing pool of realized profits ready to be paid out.

Darryl Wilson of Affluence Funds Management, which specializes in invested listed funds, said some managers had “knocked the ball out of the park” by delivering strong underlying investment performance.

“They took a bunch of profit and now they have to start paying it,” Mr Wilson told the Financial analysis.

“They need a kick in the back because they are clinging to the money. There is a real opportunity to differentiate from listed index funds and listed managed funds.

Mr Wilson said he believed LICs and LITs should aim for a payout of around 4-5% on net asset values ​​in the form of quarterly distributions.

“Once you have two or three years of profit reserves under your sleeve, how much more do you need?”

Pressure for PFRs to increase their dividend payout has been fueled in part by activist shareholders who have urged the funds to tackle steep discounts in their stock prices to underlying asset values.

VGI Partners, for example, said it would start paying dividends to investors, amid a heated campaign campaign. Meanwhile, LIC king Geoff Wilson is raising money for a new listed fund, which will in turn target listed investment companies.

“A big change”

Affluence’s Darryl Wilson said activism, driven in part by angry shareholders, played more of a role which he described as positive, but he also said there was a ‘role for patience’ in certain situations.

What is clear is that investors are turning to funds that can provide sustainable distributions. Counterintuitively, hedge funds with high turnover strategies that have accumulated large reserves of profits appear as an unlikely source of income.

“There has been a big shift in investor preference from buyouts to dividends to close the discount,” said a leading fund manager in the space.

“A year ago, investors didn’t know what they wanted. There is now a united voice for dividends.

Wilson said a good demonstration that the market tends to favor funds that distribute cash is the fact that a Plato-managed equity income fund trades at a premium to its net assets while that funds managed by Antipodes and Spheria trade at discounted prices.

All three funds are part-owned by the ASX-listed Pinnacle investment group and therefore have the same marketing team.

“They are all about fairness. But one pays a monthly dividend and trades at a premium while the other two trade at a discount,” Wilson said.

RRM’s Lay said L1 Capital’s decision to pay an initial dividend helped reduce the net asset value discount that has persisted since it raised more than $1.35 billion from investors at the mid-2018.

RRM’s inaugural monthly report ranked publicly traded investment firms based on a series of performance and risk measures.

The highest ranked investment company is Hearts & Minds (HM1). The fund is built from the best selections made at the Sohn Hearts and Minds charity conference. The fund’s shares returned 44.5% for investors over 12 months, improving the underlying fund’s performance by 30% as of April 30.

HM1 and another strong performer, Ophir High Conviction, did not pay out income to investors. Ophir is structured as an SAI and had not made a profit 12 months ago.

The second-highest ranking was Regal’s RF1, which returned 104%, while the stock gained 140% over the year. Regal’s RF1 charges a performance fee of 20% above cash rate, earning the manager tens of millions of dollars in performance fees.

Mr. Lay said strong returns in the LIC sector came from a suite of strategies of varying sizes and pointed out that smaller strategies such as Duxton Water and Ryder Capital offered strong returns for investors.

At $54 billion, the closed LIT and LIC sector is about half the size of the $100 billion exchange-traded ETF sector. But the recent trend among fund managers is to access stock market investors through an active exchange-traded fund.

New trades from PFRs have slowed significantly since the pandemic hit unit prices hard, while a ban on stamping fees has reduced the role of stockbrokers in selling new trades to clients.

Mr Lay said certain asset classes are better suited to closed LICs or LITs, such as those investing in private markets or engaging in pre-IPO and emerging companies, activist stocks or dividend strategies. high in addition to “managers who are excellent users of captive capital”.

“As it stands, some of the strategies need to improve in marketing and communications, perform well, and not take your investor base for granted just because you have captive capital,” he said. he said, noting that some funds were going in the “right direction.”

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