Before you part with your money, it pays to look into the details; or have someone do it for you. Platinum Asset Management (PTM) is a widely respected fund manager and is listed on the ASX. It has recently been announced that they are starting a Listed Investment Company (LIC) called Platinum Asia Investments. In my eyes it just doesn’t add up.
Patterson’s provide a good explanation of LIC’s: “Listed investment companies are essentially listed equivalents of managed funds but have higher levels of transparency, tend to charge lower fees than its unlisted counterparts and are closed end funds. This means investors buy and sell the LIC vehicle so the LIC managers are not under pressure to meet redemptions. A key risk is that LICs cannot be redeemed for its underlying face value and share prices may deviate significantly from its underlying NTA.” They also provides the following graph which shows that LIC’s traditionally trade at a price lower than their true value (Net Tangible Assets):
The discount to the real value of an asset is irrelevant if you buy and sell when the same discount is being applied, however if you buy when the LIC is being floated, then you are buying at the NTA price, and if the LIC then trades at a discount it will be at your expense.
Anyway, the purpose of this article is not to discuss the benefits or negative of LIC’s but to illustrate how it is important to always look into the details of what is being offered. This Platinum Asia Investments LIC has a management fee of 1.10% and an additional performance fee of 15% (excluding GST) on any amount which the company outperforms the Benchmark. The Platinum Asia Fund is a traditional managed fund which has a fee structure of either:
- 1.44% or
- 0.79% with a performance fee of 15% (excluding GST)
Therefore, the managed fund, with performance fee option, has a management fee 0.31% less than the LIC.
I wonder whether the “lead managers”, who make money when their clients buy into Initial Public Offerings, tell their clients this?
To end with, I am not suggesting the LIC is bad or not suitable for some people; it does offer some advantages such as not needing to invest a minimum of $10,000. However for a buy and hold strategy, which I think this investment lends itself to, you should consider all available options. You may also be interested in this article – Forget LICs, the key to retail is in active ETF’s.