PM Capital is looking to solve the problem of LICs trading at a discount or premium to NTA by issuing a redeemable security that aims to raise up to $491 million.
PM Capital's global equities portfolio will be made available to investors via a new LIC that includes a redemption feature that can be activated on 30 June 2025.
Speaking to InvestorDaily, PM Capital founder and chief investment officer Paul Moore said the new fund is aimed at tackling the "vagaries" of LICs, which tend to trade at discounts or premiums to NTA.
The PM Capital Global Opportunities Fund (PGF) and its subsidiary, PM Capital GO 2025 (GO 2025), have launched a prospectus for a PTrackERS security (a portfolio tracking exchangeable redeemable security).
According to Mr Moore, the redemption feature will guarantee investors receive the underlying performance of the fund over seven years, should they choose to redeem.
With a typical LIC, he said, investors can buy at a premium only to sell three years later at a discount – meaning they can lose money despite the underlying portfolio performing well.
"That's why we've structured [the PTrackERS] that way – that's what's the most efficient structure for the investor over the long term," Mr Moore said.
At present, he said, fund managers tend to view LIC issues as a fund-raising exercise that results in relatively captive FUM, he said.
"The worst case scenario is that the manager's engagement with the shareholder can dissipate. It doesn't matter whether the fund manager performs, or whether he is consistent with the objectives that he's set out from the start, there's nothing the investor can do to get their money back," Mr Moore said.
"Typically what it means is that it goes to a discount and the only way of getting out is selling at a discount, which is not good for the shareholders. So the importance of the redemption feature is that the money's not captive."
Furthermore, because PGF and the new PTrackERS LIC are based on the same portfolio, there will be an arbitrage opportunity that will ensure both portfolios trade close to their NTA, Mr Moore said.
In addition, the PTrackERS LIC will trade close to its NTA when it approaches the redemption date, similarly to debt maturities, he said.