A global LIC that plans to make a difference

This new listed investment company plans to raise up to $550m and invest in globally-focused funds, and provide support to youth mental health.

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The team that brought us the social impact-focused Future Generation Investment Company (ASX:FGX) last September is back, this time seeking to raise up to $550 million for a globally-positioned listed investment company that also will have a charitable bent.

FGX, which listed in mid-September last year, was the culmination of efforts by a “who’s who” of Australia’s funds management industry to raise $200 million into a LIC that would provide investors with exposure to some of the nation’s best fund managers and contribute to a range of charities helping at-risk children in Australia.

All managers, directors and services companies involved in the float waived their fees, with 1 per cent of the net asset value per annum to be donated to suitable charities. The offer proved incredibly popular and was quickly oversubscribed.

Now the same team are back (with a couple of new names in tow) with the Future Generation Global Investment Company (ASX: FGG), and are expecting to more than double the amount raised last time.

As the name would suggest, the LIC will have a global focus. Additionally, it will have a new charitable focus, providing funding to youth mental health issues.

The LIC will be a fund of funds, with the prospectus listing 20 funds across 17 managers, however not all managed funds will be used at the one time. At any time there will be a minimum of 10 managed funds held in the LIC. The funds will not be equally weighted, and the investment committee will decide the asset allocation given their outlook on global markets. A single fund will not exceed 20 per cent of the total pool of capital.

Managers have been chosen by their track record, but also from those who put their hand up to waive fees. The funds will be allocated to the existing managed funds already operated by the managers. As a total, the starting 17 managers have allocated a total capacity of $790 million. Managers can choose to drop out of FGG, and the funds will be redeemed and held as cash until another asset allocation decision is made. A full list of the managers and their funds can be found in the prospectus.

When I asked Geoff Wilson (director and member of the investment committee) about the asset allocation, which will play just as important a role as the underlying fund managers themselves, he stated: “We’ll put together a portfolio that will reflect the world by market capitalisation ... they won’t be taking a view on whether the US is better than Asia”.

The investment committee’s job, it seems, is to prevent an overlap in the underlying investments rather than look for areas of opportunity themselves be it within specific regions or asset classes. They will rely on the underlying managers to make the right calls within their portfolios. Having a portfolio of 20 different funds will help to smooth out the ride for investors, as inevitably not all funds and all styles will suit various market conditions.

The unique opportunity this fund represents to investors is the variety of funds within the portfolio, a few of which are not available in Australia and another good handful is available to wholesale investors only. Saying that, an investor may be limiting potential market performance with such a diversified portfolio as opposed to selecting a higher conviction manager.

FGG is aiming for long-term capital growth and to pay fully franked dividends from the profit reserves. The intention is to pay semi-annual dividends, but shareholders should not expect the first dividend to be declared until June 30, 2016.

When FGG lists it will not be included in the Eureka LIC Model Portfolio as it does not have a track record. Additionally, when looking for investment opportunities for the portfolio I will be aiming to be buying LICs at a discount to NTA. Saying that, FGG will definitely be placed on the watch list and we’ll keep a careful eye on it as I do believe it ticks a lot of the boxes for investors who lack international exposure, who don’t want to place all their eggs in one basket by selecting one manager, and who are looking for a LIC that will provide them with relative downside protection.

Additionally it is good to see a team with “skin in the game”. All of the directors will be shareholders, including Geoff Wilson with $3 million of his own funds.

There is a lot to like about the uniqueness that an LIC like FGG brings to the table as an investment opportunity. Add on top of that the overwhelming benefit youth mental health will receive and it looks like a win-win for investors and the community alike.

You can see my interview with Geoff Wilson above, and additionally here is a link if you would like the dates for the Future Generation Global Investment Company roadshows.

Offer details

Shares on offer

500,000,000

Offer Price

$1.10

Offer Opening Date

July 6

Offer Expected Close

August 28

Date of Allotment

September 7

Date Anticipated to Trade

September 10