The founding partners at Mobius Capital Partners are in an “attacking” mindset ahead of the launch of their new investment trust, saying they will not tolerate a discount position and warning that hedge funds need not apply.
Last week, Mobius Capital Partners announced its intention to raise £200m to launch an initial public offering (IPO) for the newly-established Mobius Investment Trust. The results of the issue are due to be published on 26 September.
Speaking at a media briefing on Monday alongside the other founding partners, Carlos Hardenberg and Greg Konieczny, Mark Mobius (pictured) said the trust will be “attacking” from the outset to let the industry know its intention to avoid a discount and prevent momentum traders becoming shareholders.
He said: “The important thing, given the experience we’ve had in the past, is to act decisively and let the market know you are not going to tolerate a discount on an ongoing basis.”
Mobius said this will involve letting everyone know “we’re going to be in the market; we’ll be buying”.
Discouraging investment trust arbitrage
To avoid falling into discount territory, the trust has an active discount management policy that offers investors the ability to redeem their shares at NAV, less costs, after four years and every three years after that.
It also has a 14.99% share repurchase authority that directors will consider activating where an average one-month discount exceeds 5%. This will be at the board’s discretion within normal market conditions.
The team believes these measures should stop the trust trading at a discount to NAV and discourage any potential arbitrageur activity from driving down the share price.
Hardenberg said: “It is a mechanism that repays our confidence because we feel we can execute this strategy, that we will surpass the 12-15% return expectation, and we think shareholders will be very interested in backing this further.”
However, Hardenberg said the team will discourage hedge funds that seek to gain from trading around trust discounts from becoming shareholders.
“We want more club-oriented shareholders, we want shareholders to understand this and have a passion for this investment strategy, as opposed to guys who come in and get out all the time,” he said.
“We think overall the discount management of the trust should guarantee there is a good chance it could trade at a premium – smaller [trusts] typically trade at a premium.”
Mobius Capital Partners said it will cap the trust’s AUM at between $1.3bn and $1.5bn.
The three founding partners, together with employees, are investing £5.7m which Konieczny said was another reason to avoid falling into a discount position.
Retail investors tighten discounts
Numis Securities head of investment trust research Charles Cade noted some of the larger emerging market investment trusts, such as Templeton Emerging Markets, are trading on wide discounts because their shareholder register comprises funds of fund and value investors. Newer funds, on the other hand, tend to trade at a premium because of a much more retail shareholder base.
Speaking about the Mobius Investment Trust, he said: “The discount control, combined with a more retail or private wealth shareholder register, should help it trade on a tighter discount than other larger EM investment trusts such as Templeton Emerging Markets.”
The Mobius team said the investment trust structure suits investing in emerging markets because most other trusts and funds in the universe are too big and all have exposure to the same names. It also enables the team to move into illiquid names overlooked by most larger trusts and funds and take on gearing.
