UK investment fund Carrousel Capital Ltd has turned up the heat on Perth fund manager LinQ Capital, arguing that LinQ is not dogn enough to boost price of the listed LinQ Resources Fund.
UK investment fund Carrousel Capital Ltd has turned up the heat on Perth fund manager LinQ Capital, arguing that LinQ is not doing enough to boost the trading price of units in the listed LinQ Resources Fund.
LinQ has outlined a number of capital management initiatives to boost its unit price, which trades at a discount to the fund's net assets.These include more aggressive buy-backs and an annual redemption mechanism.
"Carrousel does not believe that the capital initiatives so far outlined by LCL are comprehensive or sufficient," it said in a statement.
"In Carrousel's experience, buybacks alone have proven to be a relatively ineffective way of managing an investment fund's market price discount to NTA."
It also believes the terms of the proposed redemption are unnecessarily weighted against unitholders wanting top redeem their units.
A Carrousel statement is pasted below:
Carrousel Capital urges LinQ Resources Fund unitholders to vote 'YES'
London, September 25th 2007: Carrousel Capital Ltd (Carrousel), has welcomed the move by LinQ Capital Ltd (LCL), the responsible entity for the LinQ Resources Fund (LRF or the Fund), to call a meeting of unitholders to vote on a resolution calling on the board of LCL (Board) to provide strategies for reducing the discount to Net Tangible Assets at which the Fund's units trade in the market.
Ever since its listing on the ASX in January 2005, the price per LRF unit has traded at a discount to NTA and at times this discount has been as wide as 35 per cent.
Carrousel does not believe that the capital initiatives so far outlined by LCL are comprehensive or sufficient and the meeting will provide a forum for all unitholders to express their views on the Board's approach to the discount.
Nevertheless, Carrousel is pleased to see the Board acknowledge and begin a process to address the loss of value that all LRF unitholders have been suffering because of the discount to the Fund's NTA.
In their explanatory memorandum, the Board said it would conduct more aggressive buy-backs of LRF units and introduce an annual redemption mechanism for up to 10 per cent of the Fund's units should the average discount to NTA exceed 9.9 per cent.
In Carrousel's experience, buybacks alone have proven to be a relatively ineffective way of managing an investment fund's market price discount to NTA. Therefore Carrousel is delighted that the Board is prepared to consider new ideas such as an annual redemption mechanism, which acknowledges that normal market transactions
are not always sufficient to absorb the needs of investors wishing to exit the Fund; however Carrousel believes the terms suggested are unnecessarily weighted against such unitholders.
Carrousel and other unitholders cannot fail to note the contradiction in LCL recommending unitholders to vote against Carrousel's resolution to provide strategies to manage the discount while at the same time indicating it is considering various discount management strategies.
Bruno Sangle-Ferriere, Carrousel's chief executive, said: "The Board is sending a confusing signal to LRF unitholders by recommending they vote against Carrousel's resolution.
Adding to that confusion is LCL's mis-representation of Carrousel's intentions.
LCL's media statement, explanatory memorandum and chairman's letter all state that LCL believes we are effectively seeking 'frequent, regular and unplanned redemptions' - this is not true. Carrousel's resolution merely asks LCL to provide members with a written outline of the strategies which the directors of the responsible
entity intend to implement and believe will substantially and for the long term reduce the discount to NTA.
"Therefore the suggestion that Carrousel has asked the Board to take action in a manner that might breach ASX Listing Rules is absurd - we have asked for the Board to formulate proposals and would always expect that they would do so in a manner that would comply with all their legal and statutory requirements," Mr Sangle
Ferriere said.
"Accordingly, the Board's criticism of Carrousel's resolution is without foundation."
"While redemptions are an option for managing the discount they do not have to be frequent, irregular and unplanned," he said.
"The annual redemption facility proposed by LCL would go some way towards addressing the discount to NTA but a discount trigger for redemptions of more than 9.9 per cent is far too wide.
"So, while Carrousel is pleased to see that a unitholder meeting has been called, we believe the Board has more work to do in order to develop an effective and equitable discount management strategy," Mr Sangle-Ferriere said.
Mr Sangle-Ferriere also said it was disappointing that LCL's explanatory memorandum expressed the performance of LRF excluding the impact of the Fund's substantial cash holdings.
"Cash should be included in the calculation of the performance of the Fund just as it is included in the calculation of the manager's management fee," he said.
Mr Sangle-Ferriere said the Board's decision to consider a cash redemption was long overdue considering the Fund had raised $100 million in cash in January and at the end of August was still sitting on more than $60 million in cash.
"One obvious way to help solve the cash drag on the Fund's performance is to distribute the cash to unitholders," Mr Sangle-Ferriere said.
"We will be encouraging our fellow unitholders to closely scrutinise the explanatory memorandum during the lead up to the meeting on October 22.
We believe the Board is heading in the right direction with some of the proposals they have put forward but it is up to them to come up with strategies that will substantially reduce the discount to NTA for the long term in the interests of all unitholders," Mr Sangle-Ferriere said. "But we are encouraged by the Board's acknowledgment that a more pro-active approach is necessary to address this problem."
Carrousel believes that the only assurance unitholders have that the Board will focus on managing the discount is if unitholders send them a clear message by voting IN FAVOUR of the resolution.
"As a fellow unitholder, we are therefore seeking your support and vote IN FAVOUR of the resolution to encourage the Board to develop and implement comprehensive and sufficient strategies without delay," Mr Sangle-Ferriere said.
