This article appeared in the August 2014 ASX Investor Update email newsletter. To subscribe to this newsletter please register with the MyASX section or visit the About MyASX page for past editions and more details.
Leading fund managers to donate their services for Listed Investment Company.
By Kate Thorley, Wilson Asset Management
The Future Generation Fund (ASX Code: FGX) is a new Listed Investment Company (LIC) that will invest in Australia's future generation by donating 1 per cent of its net tangible assets (NTA) to Australian children's charities each year.
It has been specifically set up to benefit charities supporting Australian children at risk, and is expected to list on ASX on September 15.
The concept, which has been championed by Wilson Asset Management chairman, Geoff Wilson, and based on the UK's Battle Against Cancer Investment Trust (BACIT), will provide investors with exposure to Australian equities via Australia's best fund managers, including David Paradice, Peter Cooper, Mark East, Philip King and Stephen Aboud.
Fund managers will donate skills
To enable the company to make the charitable donation of 1 per cent each year, fund managers will donate their investment management skills free of charge. (Typically, an investment manager receives a fee of around 1 to 1.5 per cent per annum for managing a fund and making investment decisions on behalf of investors. Managers may also seek to outperform a benchmark which, if it is exceeded, may trigger the payment of a performance fee, which could be 20 per cent.)
In the case of the Future Generation Investment Fund, the participating managers have forgone both management and performance fees, which typically average 1.3 per cent and 17 per cent respectively. Instead, the company will make an annual 1 per cent donation to a select group of Australian children's charities.
Additionally, the board and service providers (including legal, share registry, accounting and tax) are also contributing their services pro bono. Future Generation Investment Fund is therefore a win for shareholders and charities.
How it works
The company will invest with each fund manager in the same underlying funds in which they receive fees; therefore they will need to strive for performance. The fund managers will rebate the fees back to the company.
The Future Generation Investment Fund's board and investment committee are well known, respected and experienced professionals. Many currently serve on a number of LIC boards and are committed to ensuring the best possible outcome for investors.
The charities selected as beneficiaries of the donations are considered by the board to be not only worthwhile, but to be managed efficiently, so the maximum benefit from the donation flows to those most in need of assistance.
As a Listed Investment Company, the fund will operate under a company structure. Each month the company will announce its Net Tangible Assets (NTA) and the allocations to each underlying fund. The company will be listed on ASX and subject to ASX supervision and continuous disclosure obligations. Shareholders will have the opportunity to attend Annual General Meetings of the company as well as to be involved with the six-monthly shareholder presentations.
Investors will be able to trade shares in the company via ASX in the way they may currently trade other ASX-listed shares.
The investment objectives of the fund are to provide a stream of fully franked dividends, achieve capital growth and preserve shareholder capital. The LIC model of a closed-end entity (the fund has a set pool of capital to invest) and the ability to pay fully franked dividends is well known to many and has proved popular with investors over time.
The company's charitable goal is to make a difference to Australian children by providing financial support to the designated charities. The company itself is not a Deducible Gift Recipient (DGR) or otherwise classified as a charity, and so will be taxed as any other LIC, with donations appearing as a cost on its profit-and-loss statement published in its annual report.
Access to a range of fund managers that would not otherwise be accessible to retail investors and investing in Australia's future generation is a market first. The absence of fees and the intent of the fund to benefit both investors and charities make it one of the more unique investment opportunities in the market.
View more details on the board, fund managers and designated charities, as well as relevant company information, including the prospectus and application form, are available.
The Future Generation Investment Fund is currently raising up to $200 million via a prospectus, which is expected to close on September 3, 2014.
About the author
Kate Thorley is Wilson Asset Management's CEO and company secretary of Future Generation Investment Fund.
The team at Wilson Asset Management is supporting this unique initiative by acting as a fund manager and by providing some services, including marketing and accounting, on a pro bono basis.
Listed Investment Companies and Trusts provides a wealth of information on LICs.
The views, opinions or recommendations of the author in this article are solely those of the author and do not in any way reflect the views, opinions, recommendations, of ASX Limited ABN 98 008 624 691 and its related bodies corporate ("ASX"). ASX makes no representation or warranty with respect to the accuracy, completeness or currency of the content. The content is for educational purposes only and does not constitute financial advice. Independent advice should be obtained from an Australian financial services licensee before making investment decisions. To the extent permitted by law, ASX excludes all liability for any loss or damage arising in any way including by way of negligence.
© Copyright 2014 ASX Limited ABN 98 008 624 691. All rights reserved 2014.