Summary –
Discounts compressed slightly this week. The big news still relates to last week – L1’s proposal to buy 75% of Platinum. Should a merger eventuate, the combined business would oversee $18 billion and, based on Platinum’s share price, have a valuation of about $1.3 billion. While Platinum accounts for the majority of funds at around $10.5 billion, the proposed 75 to 25 per cent split in favour of L1 Capital reflects its better growth prospects and performance. Not to mention the trend of a material decline in Platinum FUM in recent years.
L1 stated that it expects the combined business to benefit from improved resourcing and capabilities across investments, client service and operations, as well as increased diversification across investment strategies and distribution channels. Platinum, along with Magellan, were pioneers in international equities strategies in the LIC/LIT space but in recent years has recorded a marked decline in FUM (from circa $25bn in 2019 to circa $10bn currently), and partly due its relatively lower performance which in turn is partly due a relatively low exposure to US equities and in particular the Mag 7. Hardly Platinum’s ‘fault’ – it is a truly diversified and global mandate. It’s performance had in actual fact been relatively true-to-style.
The acquisition reflects a number of broader trends.
Firstly, active equities managers have historically really struggled to outperform passive strategies. In fact, over 3-year rolling periods they tend to underperform circa 75% of the time, according to S&P SPIVA data. They particularly underperform in solid Beta markets, and, for e.g., they are not permitted to go circa 35% portfolio exposure to the Mag 7 (as per the S&P 500). Essentially, active equities strategies have been sitting ducks through no fault of their own. In contrast, while L1 is an active equities strategy, it a long/short strategy – a strategy that historically generates decent alpha, or at latest the Top Quartile of managers do.
Secondly, the Australian LIC/LIT sector has been undergoing a marked consolidation / rationalisation for a good 5-7 years now. Many smaller LICs have converted to either an active ETF or to an unlisted managed fund, and have done so to annual persistent discounts to NAV. Some have been acquired by other LICs/LITs – think Regal acquiring VGI and PM Capital and WAM acquiring several LICs.
The Australian LIC sector has really struggled in recent years bar the following strategies: private debt LITs; alpha seeking long/short strategies; particularly good long-only equities strategies, such as WAM Capital; and, finally the old-school LICs like AFIC.
LICATs Weekly Summary
| Name | Code | Closing Price | Running Yield | NTA | Premium/(discount) to NTA | Market Capitalisation (millions) | Average Daily ASX turnover (000s) |
|---|---|---|---|---|---|---|---|
| Acorn Capital Investment Fund | ACQ | 0.73 | #N/A | 1.10 | -0.34 | 65.19 | 56 |
| Glennon Small Companies | GC1 | 0.475 | 0.07 | 0.79 | -0.40 | 22.92 | 31 |
| Katana Capital | KAT | 1.18 | 0.02 | 1.34 | -0.12 | 36.59 | 7 |
| KKR Credit Income Fund | KKC | 2.25 | 0.09 | 2.46 | -0.09 | 725.70 | 431 |
| MCP Income Opportunities Trust | MOT | 1.97 | 0.08 | 2.15 | -0.08 | 655.31 | 397 |
| MCP Master Trust | MXT | 2.03 | 0.08 | 2.01 | 0.01 | 2159.83 | 1087 |
| Perpetual Credit Income Trust | PCI | 1.17 | 0.08 | 1.11 | 0.06 | 569.28 | 505 |
| Qualitas Real Estate Income Fund | QRI | 1.635 | 0.08 | 1.61 | 0.02 | 994.78 | 283 |
| WAM Alternative Assets | WMA | 1 | 0.08 | 1.19 | -0.16 | 196.17 | 209 |
Closing price as at end of week.