PM Capital Asian Opportunities Fund Limited (ASX Code: PAF) is a newly incorporated listed investment company (LIC) that will invest predominately in listed securities diversified across Asian equity markets (ex Japan).
The portfolio will be focussed on absolute, long term, after tax returns (long / short, high cash if no value can be found) and be relatively concentrated (15 -35 securities). Seeking to provide long-term capital growth the portfolio’s investment mandate will be broadly based on the guidelines of the successful PM Capital Emerging Asia Fund (which is an unlisted managed fund), the main difference being the use of shorts up to a maximum 30 per cent.
PAF is seeking to raise a minimum $50 million and maximum $200 million under the Offer (with free attaching Options on a one-for-one base exercisable before 31 May 2016, no dividend entitlement). Upon listing the Company expects the shares to have a NAV of $0.974 (based on min. $50m raised, 25 per cent under General Offer & 75 per cent under the Broker Firm Offer). Zenith rates the PM Capital Asian Opportunities Fund Limited APPROVED
Zenith’s View
PM is a Sydney-based funds management boutique established in 1998 managing over $1.7bn as at February 2014. The firm offers global, Asian and Australian equity funds, as well as a credit/hybrids fund. CIO Paul Moore has over 25 years of investment experience and is well regarded by Zenith. PGF will be managed by Portfolio Manager Kevin Bertoli who will work closely with Moore. Zenith however notes that Moore has final approval for all stocks in the Fund, as is the case for all of the firm’s funds.
PM Capital (PM) utilises a bottom up, benchmark unaware security selection process, favouring contrarian views to exploit market mispricing. The key criteria PM Capital focuses on are expected cash flow yield, return on capital, earnings and a low debt profile. Paul Moore, CIO and founder of the firm, plays a key role in the portfolio management of all funds offered by the firm, including PAF, which Zenith views favourably.
Like its unlisted counterpart, the LIC portfolio is managed within a flexible mandate, which may create some performance volatility at times. The level of hedging back into Australian dollars will vary as PM Capital actively manages currency to add value to the portfolio (can hedge up to 100 per cent).
The LIC structure around the Fund may appeal to investors who seek greater liquidity and transparency and also the ability of LIC’s listed on the ASX to potentially distribute franking credits more easily than global equities portfolios held by unlisted managed funds. In addition, the benefit of LIC structure is that some shareholders may qualify for income tax concessions in respect of dividends paid out of certain capital profits. The base management fee of 1.0 per cent p.a. of NAV is cheaper than the unlisted PM Capital Emerging Asia Fund, which charges 1.40 per cent p.a. PAF however has a performance fee structure which the unlisted variant lacks.
As a new IPO, the PGF is expected to trade underneath its $1.00 application price, once allowing for the cost of the capital raising. Potential investors therefore need to decide whether they invest under the Offer and receive the free options or wait until post ASX listing.
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