A responsible solution for the discount - Convert to a trust

Ashok Jacob's Ellerston will convert its global listed investment company to an unlisted trust to allow investors to cash out of the fund at the underlying value of the assets, as activist investors push for LICs to rethink "flawed" structures.

Ashok Jacob's Ellerston Global is converting its listed investment company to a trust to provide liquidity for its investors at a better price. Jim Rice

Mr Jacob's decision to restructure the $120 million Ellerston Global Investments will throw further fuel on the debate over the future of LICs, as share prices of numerous listed investment trade below the value of their net tangible assets.

"I am not prepared to tolerate the discount," Mr Jacob said.

After fees, the fund is up 24 per cent in the year to date, Mr Jacob said, adding that he no longer considered good performance a way to narrow the discount to NTA.

"There is no correlation between the performance and the discount," he said. "I don't think any performance is going to [get the fund] to trade at par."

RELATED QUOTES

EGIEllerston Global Investments1 day

$1.095.31%

Nov 18Mar 19Jul 19Nov 190.930.971.01

Updated: Nov 7, 2019 — 6.51pm. Data is 20 mins delayed.

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APLAntipodes Global Investment Company

$0.962.13%

Nov 18Mar 19Jul 19Nov 190.900.951.001.051.10

"There are billions of dollars that have gone missing because LICs are trading at a 17 per cent to 20 per cent discount [to their net asset value]. You can't work with that forever ... most of my shareholders are friends."

Mr Jacob said he had spoken to shareholders who planned to keep their investments in the fund, but wanted the option of exiting at a price equivalent to net tangible assets.

Activist shareholder David Kingston has been pushing for the fund to be wound up, describing the structure as "chronically flawed" in a letter to the company at the end of October.

Mr Kingston welcomed the proposed conversion of Ellerston Global to a trust, calling it "decisive". The firm is setting a good example to other listed investment companies on how to address their NTA discounts, he said.

"Now it's up to other LIC managers penalising their shareholders with discounts to take decisive action," he said.

Ellerston Global said a trust was an effective way to allow investors who wanted to exit early to do so at a better price. It would also avoid the fund becoming a forced seller of assets, and averted other costs and tax implications that might have been associated with a wind-up.