19th Apr 2016 11:00
LONDON (Alliance News) - LIM Advisors, the Hong Kong-based investment manager with about USD1.7 billion under its watch, on Tuesday said it wants a chance to exit AIM-listed investment trust Atlantis Japan Growth Fund Ltd without having to sell its 14.9% stake at less than book value on the market, calling for that opportunity to be extended to other shareholders.
In a letter directly appealing to fellow shareholders, LIM said Atlantis should bring forward proposals, which may include a roll-over option into a new open ended fund, to provide an exit opportunity and suggested a reconstruction or liquidation of the fund.
Having already scheduled a vote on LIM's proposals for May 3, Atlantis is opposed to the proposals and wants other shareholders to oppose them. LIM's proposals require the support of 75% of votes cast to pass. Atlantis received a boost earlier this week when it emerged that Pensions & Investment Research Consultants Ltd, the shareholder advisory, recommended a vote against LIM.
Atlantis first alerted shareholders to LIM's discontent on March 18, 10 days after its investment manager Tiburon Partners LLP and its investment adviser Atlantis Investment Research Corp agreed on changes to improve investment performance and communication with investors.
As originally envisaged, Ed Merner would have continued as the lead manager of Atlantis Japan Growth Fund's investments, with the intention being to include the top 10 stock picks of Taeko Setaishi, the lead manager of Atlantis Japan Opportunities Fund, an open-ended sister fund to the London-listed entity.
One month after unveiling the plans to include Taeko Setaishi's top stock picks, Atlantis Japan Growth Fund changed its position, instead deciding that she would become lead adviser from May 1, the beginning of its financial year, replacing Merner.
Appointing Setaishi came with plans to manage Atlantis Japan Growth Fund's investments in a similar manner to its open ended sister. At the same time, Atlantis Japan Growth Fund backed its closed-ended structure, under which a fixed number of shares are in issue at any one time and traded on the stock market, to produce "superior investment returns" relative to its open-ended sister over time.
Unlike open-ended funds, which expand and contract as investors add or withdraw funds, closed-ended funds have a stable pool of capital and are able to make use of borrowing with the aim of boosting returns.
According to LIM, a closed-end structure is not required to achieve good returns, suggesting that Atlantis Japan Growth Fund could be open-ended and run in a similar way to Atlantis Japan Opportunities Fund.
"We believe that the board should explain to shareholders why it has not acted sooner in respect of the under-performance by Atlantis Japan over the last few years particularly as it has been getting steadily worse," LIM said in its letter to shareholders.
LIM said shareholders also have "a right to know" why they have been invested in a fund that lost 2% of its net asset value in the 12 months to March 31, whereas Atlantis Japan Opportunities Fund made a 25.4% total return.
The figures were published in a document sent to shareholders by Atlantis Japan Growth Fund regarding the vote. It showed that the closed-ended fund fell short of its open-ended sister over both three- and five-year periods to March 31.
The growth fund's total return in sterling was 23.8% over three years and 74.6% over five to March 31, while the opportunities fund had a total return of 77.9% over three years and 169.9% over five.
With a market value of about GBP55 million, Atlantis Japan Growth Fund is "too small" to attract new investors, LIM, said, and complained about the discount at which the fund's shares trade to net asset value.
Atlantis Japan Growth Fund says its shares have traded at an average discount of 8.0%, which is narrower than the average discount for its peer group of 9.5%, since the introduction of a mechanism to control the discount in March 2013. The fund has promised "enhanced" marketing and investor communication.
According its statement, LIM wrote to Noel Lamb, the chairman of Atlantis Japan Growth Fund, to discuss its concerns in December. Since then, LIM said it has had two meetings and "various" correspondence with Lamb and his advisers "but unfortunately was dis-satisfied with the answers".
Shares in Atlantis Japan Growth Fund were unchanged at 137.00 pence on Tuesday.
By Samuel Agini; [email protected]; @samuelagini
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