Odinian Beta

Paul Moore’s PM Capital is one of Australia’s most successful and renowned fund managers.

After starting his career at BT, Moore struck out on his own, forming PM Capital in 1998.

Moore is a value investor, renowned for investing in unfavoured and even hated industries and then waiting until things turn around.

He made a killing in the GFC buying Las Vegas real estate after the American housing bust. As he said at the time, earning double digit returns on Las Vegas residential real estate protected his downside while he waited for the housing market to turn.

He has also profited from the long-standing consolidation in the global brewing industry, time and again buying companies benefitting from this trend, whether as acquirer or acquiree.

After managing an outperforming unlisted global fund since 1998, PM Capital launched the PM Global Opportunities Fund (ASX: PGF) on the ASX in 2013. This fund invests in global equities and is designed to replicate the unlisted version to the greatest extent possible.

An Asian focused LIC, PM Asian Opportunities Fund (ASX: PAF) was subsequently launched in 2014. Again, this was designed to replicate the unlisted version to the greatest extent possible.

Unfortunately, the performance of PAF has been mediocre. Despite beating its benchmark over the past year, PAF has underperformed since inception. The LIC is also illiquid and subscale, with a market capitalisation of less than $100m.

Merger

To resolve these issues, PGF has proposed to merge with PAF, issuing PGF shares to PAF shareholders based on their relative NTAs. PGF has more than 10 times PAF’s pre-tax net assets and the merger provides PAF shareholders with enhanced liquidity.

PAF shareholders will also continue to have their investment managed by Paul Moore and the team, while likely earning higher dividends. PGF recently committed to paying a minimum of 10 cents per share in dividends in 2022, fully franked to the extent possible.

At the current PGF share price of $1.49, this works out to a 6.7% dividend yield or a grossed up yield of 9.6%.

The larger PGF also it has a better chance of trading closer to NTA. LICs are notorious for trading at discounts to NTA, for reasons ranging from their management and performance fees to their lack of liquidity.

Enter Geoff Wilson

PGF was all set to mop up PAF until Wilson Asset Management, founded by Geoff Wilson, recently entered the fray.

WAM is offering PAF shareholders 1.99 shares in WAM Capital (ASX: WAM) for each PAF share they own. At current prices and NTAs, WAM’s offer represents $1.156 per PAF share compared to around $1.095 under PGF’s offer.

Why does Geoff Wilson want PAF?

Apart from the obvious of yet more funds under management (FUM) and the associated management and performance fees, Wilson Asset Management wants access to the 1,200 investors in PAF.

The firm already has a wide stable of LICs but seven of the eight are focussed on Australian equities. The acquisition of PAF would increase its global equities FUM as well as allowing it to cross-sell its other LICs to PAF investors.

This is a continuation of a strategy that Wilson Asset Management has been pursuing in recent times in acquiring underperforming LICs and/or those selling at discounts to NTA to expand its business.

Needless to say, Paul Moore isn’t going to allow PAF and its investors to go without a fight.

It will be interesting to see what transpires in the battle over PAF.