New LIC offer: award-winning manager with first of its kind redemption ‘safety net’

From
Paul Moore

Paul Moore

PM Capital Global Opportunities Fund (ASX: PGF) and its subsidiary, PM Capital GO 2025 Limited (GO 2025) have jointly issued a Prospectus for the Offer of a next-generation Listed Investment Company (‘LIC’) security: ‘PTrackERS’, which stands for Portfolio Tracking Exchangeable Redeemable Securities (Converting Security).

A first of its kind innovation in the LIC space, PTrackERS have been developed to improve LIC investor outcomes and choice.

The Offer is made via a 1:1 Entitlement to PGF shareholders, plus a General and Broker Firm Offer. The Issue Price is $1.40 per PTrackERS, to raise a minimum of $105 million and a maximum of $491 million.

The Chairman of PGF and GO 2025, Andrew McGill, said: “GO 2025 is unique in the Australian market, combining the skills of an exceptional global equities investment manager, PM Capital, with a highly innovative offer structure that gives investors more control, choice and flexibility.

“PM Capital is in its 20th year of applying its global investing philosophy and process, and has one of the most deeply experienced global equities teams in Australia. In 2017, PM Capital’s global equities strategy applied to funds ranked first for performance in their peer group from 1 year all the way out to 9 years.

“PTrackERS provide access to the management experience of PM Capital, along with a significant benefit – the choice for sellers to redeem in the future based on NTA, thereby providing a redemption safety net if the securities are trading on market at a discount to NTA.

“This is a first of its kind benefit for investors in listed investment companies.

The Chief Investment Officer and Chairman of PM Capital, Paul Moore, said:

“Australians are citizens of the world. Given our outward focus and desire to experience the best the world can offer, it still surprises me that Australians keep such a large proportion of their assets in Australian equities rather than global equities.

“PM Capital GO 2025 provides an efficient and flexible way to take advantage of what we see as the best global opportunities to build wealth – with a long-term perspective.

“We believe our benchmark-unaware philosophy and process suits GO 2025’s aims and structure, allowing us to seek market anomalies that can provide attractive long-term returns.”

GO 2025’s Investment Strategy, and that of its parent PGF, is consistent with that of PM Capital’s unlisted managed investment scheme, the PM Capital Global Companies Fund and other associated global mandates. Across these funds and mandates PM Capital was ranked first in its peer group over 5, 6, 7, 8 and 9 years returns to 31 December 20171.

Since inception the PM Capital Global Companies Fund has doubled the annual returns of the MSCI World Net Total Return Index (AUD)2. PGF’s portfolio, also managed using a consistent global investment strategy, has generated a total return3 of 75% since inception. PM Capital was awarded the Money Management/Lonsec – 2018 Fund Manager of the Year – Equities (Long/ Short category).

GO 2025 is a step forward for LICs

‘GO 2025’ stands for ‘Global Opportunities’, reflecting its focus on global securities, and the year 2025, which is when its ASX-listed securities, the PTrackERS, provide holders the choice to either convert into PGF shares or redeem based on NTA.

The 7 year conversion/ redemption right reflects PM Capital’s recommended investment time frame of seven years plus across its global equities strategies.

It is the first time this type of security has been offer by an LIC.

Major factors which can negatively affect LIC investor returns:

  • significant establishment costs resulting in day 1 investable assets being materially below the IPO price;
  • even strongly performing LICs can trade away from their underlying net tangible asset (NTA) value, creating uncertainty for investors as to whether they can obtain the underlying value of their securities;
  • growth in a LIC’s capital can lead to a dilution of NTA per share for existing holders making NTA performance vary from the investment manager’s performance;
  • Locked-up capital creating low alignment between shareholders and the LIC investment manager, and
  • Uncertain dividend policy.

PTrackERS by GO 2025 have been designed to address the above concerns. With PTrackERS:

  • PM Capital is paying all Offer costs. On day 1, PTrackERS investable assets will equal the Issue Price (NTA will not include any soft intangible receivables from the investment manager. This is extremely rare with LICs);
  • a selling holder has the choice of selling on market or redeeming based on NTA on 30 June 2025. This feature should also act as a catalyst for PTrackERS to trade closer to NTA;
  • PTrackERS are non-dilutive to NTA before tax plus franking credits for both PGF and GO2025;
  • other LICs lock-up capital, whereas PTrackERS gives investors the choice in 7-years’ time to redeem or stay. This makes the investment manager truly aligned and accountable for investment performance and communication, and
  • a clear dividend policy that intends to target a distribution yield of between 3% and 4% per annum.

With PTrackERS the benefits of traditional LICs outlined below remain:

  • PTrackERS will be traded on the ASX (Code: P25PA) consistent with shares of LICs;
  • the Investment Manager can, due to the seven year time frame, genuinely invest for the long term without the distraction of daily capital flows, and
  • dividends can be franked where franking credits are available.

Higher levels of alignment between investors and the Investment Manager

PM Capital is strongly aligned to the GO 2025 and PGF investment strategy:

  • The Investment Manager, PM Capital, and its staff are, in aggregate, the largest holders in GO 2025’s parent, PGF, with a co-investment representing approximately 8.9% of PGF’s issued capital (amounting to an investment of over $40 million);
  • If the Offer is fully subscribed, PM Capital will be required to pay approximately $15 million in fees and costs on behalf of the Issuers; and
  • If investors do not believe they have had a good investment experience, they can redeem PTrackERS on 30 June 2025, and in doing so remove a source of PM Capital’s management fees revenue.

Broker Syndicate

Morgans Financial Limited is the Lead Arranger and Joint Lead Manager to the Offer. Morgan Stanley Australia Securities Limited and Ord Minnett Limited are the other Joint Lead Managers.

The Co-Managers to the Offer include Baillieu Holst Limited, Bell Potter Securities Limited, Kimber Capital Pty Ltd, Patersons Securities Limited, and Shaw and Partners Limited.

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