India Fund IPO reheats leftovers

A prospectus for an LIC investing in India is doing the rounds again but is it the best way to gain exposure to the Indian growth story? 

Do you have faint recollections of an IPO for a listed investment company focusing on the ever emerging Indian market? If so, it might be because this will be the third time that John Pereira has opened up the bain-marie for India-hungry Australian investors.

In 2007, $75m was raised by manager Olympus Asset Management Pty Ltd (100% owned by Pereira) for the India Equities Fund Limited (ASX:INE). The fund invested in a portfolio of Indian listed securities and the portfolio manager was UK-based fund manager Kotak Mahindra (UK) Limited.

Kotak Mahindra received 60% of both the 1.25% per year management fee and any performance fees, while Olympus received the remainder. There were other expenses, too, which were deducted from the value of the underlying portfolio.

The portfolio performed well, until the GFC that is. Making matter worse, INE then failed to close the substantial discount between its share price and net tangible asset value. So after numerous extraordinary general meetings, 90% of the capital was returned to shareholders in 2010. This equated to $0.60 per share and, after the capital return, the board was reshuffled and the India Equities Fund became a corporate shell.

Reheating leftovers

Jump ahead five years to 2015 and a prospectus for the India Fund Limited was lodged with Tristar Capital Pty Ltd (50% owned by Pereira) listed as the manager and with Kotak Mahindra once again the portfolio manager.

The management and performance fees were familiar but this time annual expenses were capped at 0.75% of the underlying portfolio (they really added up last time!) and the minimum amount to be raised was $35m.

That offer fell short but now, a year later, Tristar Capital is having yet another crack at an Indian focused LIC, this time with a minimum take up of just $16m. The prospectus was supposed to be lodged with the ASX and ASIC on Monday and once again it will be Tristar Capital in conjunction with Kotak Mahindra as the manager. While I'm still waiting for the prospectus to be released, I don't expect any changes to the fee structure or the split between the parties.

Investment strategy

The investment philosophy outlined in the failed prospectus was a fairly wide and all-too common bottom up approach with a top down macro overlay. This is as loose an investment description you can get. There were parameters for the fund to hold 65% in Indian listed equities and 35% in fixed interest securities with a 10% range either side. Other than that, the only things they couldn't do was short sell or use leverage. These overly-wide parameters wouldn't appeal to the detail-oriented investor. 

Of course, the main selling point is what rather than who or how. What you see through all marketing material is India rather than company-specific facts. For example, that India had 1.018 billion (yes billion) mobile phone connections in 2015 and a tourism market worth US$120 billion are relevant for investors in the LIC if it's marketing is to be believed. Tristar’s recent report even made sure to point out that Donald Trump is planning on making a substantial investment in India. That’s reassuring, then.

Given volatility was cited as the main issue the last time the India Fund tried to raise funds, I'm not sure if timing will be on Pereira’s side this time either. Markets are hardly calm right now but maybe it’ll be third time lucky. And with the fundraising bar set significantly lower, at $16m, perhaps this one will get it.

It’s hard, if not impossible, to recommend a re-heated float like this, especially when a handful of unlisted funds led by Fidelity, emerging market ETFs and Asian LICs like Platinum Asia (ASX:PAI) and Ellerston Asia Investments (EAI) offer investors more reliable Indian investment exposure. Full marks, though, to Pereira for persistence. But that’s just about the only thing to admire in this latest re-heated IPO.