Platinum Asia calling
Kerr Neilson's Platinum Asia fund is the latest listed investment company float coming your way.
- Invests in Asian markets excluding Japan
- Great investing track record
- Offer closes 7 September
Whether it be visiting the Great Wall of China, the Taj Mahal or simply a Balinese nightclub, Asia has long been a region popular with Australians. The region has also been experiencing enormous economic growth. It is no surprise then that the Platinum Asia Investments Fund (PAI) has been a hot topic with many members.
The company aims to raise $150 million in an offer that closes on 7 September 2015. Each share will be offered at the price of $1.00 and will come with an option to subscribe for another share at $1.00 before 15 May 2017. PAI will use the proceeds to invest in Asian markets including China, Hong Kong, Taiwan, India, Indonesia, South Korea and Singapore amongst others but not Japan.
PAI will be managed by Platinum Investment Management (PIM, a wholly-owned subsidiary of ASX-listed Platinum Asset Management (ASX: PTM)), and specifically by Joseph Lai, who is also the investment manager for the unlisted Platinum Asia Fund.
PIM will charge a management fee of 1.1% of the portfolio value for the privilege. There will also be a performance fee of 15% of the excess return over the benchmark MSCI All Country Asia ex Japan Net Index in any year, although it must first make up any prior underperformance.
PAI will also have quite a loose investment mandate allowing it to borrow up to 10% of the fund’s net asset value as well as being permitted to use derivatives and short selling. The company will actively manage its currency exposure ‘with the aim of maximising the Portfolio’s exposure to appreciating currencies and minimising its exposure to depreciating currencies’, which is easier to say than it is to do.
On page six of the prospectus, PIM chief executive Kerr Neilson makes the investment case for investing in Asia. The region has undergone significant change that has seen many barriers removed. China, notes Neilson, ‘produces nearly 10 times more steel than the USA, 30 times more cement and twice the number of motor vehicles’. India, meanwhile, ‘produces 60% more wheat and 60% more milk than the USA, and has overtaken Brazil to rank as the largest exporter of beef’. He makes a compelling case.
Using an experienced fund manager to invest on your behalf in Asia will also make good sense for most people. Some of these countries are quite complex and, to be successful, investors need to understand the nuances of the various cultures, political systems and regulations of the region, all of which can be vastly different to what we are used to in Australia.
Platinum has already demonstrated its skills in Asian markets. The Platinum Asia fund, for example, has returned 17.0% per year on average since it was established in 2003, compared to 11.1% per year for the MSCI Asia index ex Japan (as measured in Aussie dollars). If you were going to entrust your money to an Asian-orientated fund manager, Platinum should be one of the first funds on your list.
The difficulty for investors is that the Platinum Asia Fund is available to them as well as PAI, and if you invest in it, then 100% of your money will be working for you immediately. However, for every dollar invested in PAI at the outset, only about 98.3 cents will be working for you due to the costs of the offer.
As is the fashion, the company is offering an option with every share in an attempt to make up for this, but it’s really just a gimmick. You can’t just magic money out of thin air by issuing options. The company is raising $1 for every share and option package issued and it’s leaking about 1.7 cents, so the packages will only be worth 98.3 cents at the outset whatever happens; any perceived value in the options (due to their eventual exercise) will be value lost to the shares (due to their eventual dilution).
Of course, the stock might always trade at a premium to its net asset value (like its stablemate Platinum Capital (ASX: PMC)), but that wouldn’t change the fact that it has slightly less money invested than investors are committing and, as a result, its returns will be diluted.
Advantages to investing
That said, there are some potential advantages to investing via the listed PAI. First of all, its annual fees are lower than the 1.54% standard option on the unlisted fund, although PAI comes with the performance fee, while the unlisted fund has none. There is a performance fee option on the unlisted fund which has a lower annual fee (0.89%) as PAI for a similar performance fee (16.5%), but this is only available to people investing more than $500,000. Second, the Platinum Asia Fund has a minimum investment of $20,000, while investors can invest as little in PAI as their dealing costs reasonably allow. Finally, investing in PAI is as simple as an online share trade, whereas the unlisted Asia fund means filling in a chunky application form.
Whether these advantages make PAI a better choice for you will depend on your circumstances and the premium, or discount, at which the stock is priced. At the float, it’s priced at a slight premium and looks a reasonable option, particularly for those planning a long investment (and therefore potentially saving a lot on costs) and for those with less than $20,000 to commit.
Otherwise, it may be worth keeping an eye on the stock in the hope of picking it up in the market at a discount. This is the approach we’ll be taking, although we won’t be putting an official recommendation on the stock for the time being.
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