Listed Managed Investment Monthly Review

The issue of stamping fees paid to brokers and advisors as part of the ASX capital raising process has caused a fair amount of debate on the topic both for and against the merit or not of their use. The ASIC analysis while factual we believed failed to provide additional context and nuance around LIC valuations and performance. The attributing of zero value to any options issued along side the IPO for instance or the fact that some of the IPO’s had all the fees borne by the investment manager which in itself is an improvement to days gone by when all listing fees were borne by LIC investors.

Indeed the recent Magellan IPO for the Magellan High Conviction Trust (ASX: MHH) went one step forward and didn’t pay any fees, stamping fees or otherwise to brokers and advisors rather opting to reimburse investors though additional loyalty and/or foundation units. However, one could even crystal ball into the future and see how the Magellan scheme could also become distorted. Let us say for example a fund manager is raising directly from investors similar to the Magellan model, but offering ever higher allocations of foundation and loyalty units as inducements to potential retail investors. What happens though if this LIC then suffers chronic under performance and trades at wide discount for the next 5 years? One has to wonder what would ASIC response to this be.?

There is also the issue of how any rule changes are applied to, or effect other similar investment holding structures for example A-REIT’s and ETF’s when they initially list. To give one example, a recent A-REIT IPO had offer costs estimated per its offering documents to be circa 6.5% of the total capital raised but didn’t pay stamping fees. In other words the NAV of the A-REIT will be impacted by circa 6.5% on day 1. LIC’s could remove stamping fees for the sake of optics but up the fees paid to all the investment banks etc which would drive incentives for them to get the IPO away, no doubt through increased marketing to retail investors.

The above should convey that there is a lot of nuance and context that needs to be considered by the all stakeholders including ASIC, the ASX, The Treasurer and the financial services industry as a whole before any new jerk reactions to ASIC’s analysis is implemented. Indeed we voiced our support for some of the ASX listing rules changes brought in at the end 2019 which we think will improve the deal for LIC retail investors and we are encouraged by the ASX’s commitment to conduct further work on some other listing rules based on feedback it received during its consultations on LIC ASX listing rules in 2019.