5/13/2015
AMP's China Growth Fund under an activist cloud | afr.com
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Home / Business / Banking & Finance / Financial Services
May 13 2015 at 4:30 PM | Updated 1 hr ago
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AMP's China Growth Fund under an activist cloud
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AMP's listed China Growth fund invests in China A shares listed on China's Shanghai or Shenzhen stock
exchanges. AP
by
Matthew Smith
| Ruth Liew
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
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AMP's China Growth Fund under an activist cloud | afr.com
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
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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.
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best interests," the statement said.
Select Investment Partners, chief investment officer Dominic McCormick, said he has
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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
Investment firm Bell Potter pointed out in an investment note on
Wednesday, Chinese government policy aimed at encouraging a transition of
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despite maintaining one of the highest NTA discounts on the ASX.
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.
ACCRETIVE BUYBACKS
"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 ASXlisted 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
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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.
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