LIM Advisors urges AGF wind-up

Lim Advisors has urged the unitholders of AMP Capital China Growth Fund (AGF) to vote for the wind-up of the fund at the extraordinary general meeting (EGM), which will be held on July 28, in its second open letter reiterating the company's view on the fund. 

Earlier in June, LIM Advisors introduced its proposal to wind up AMP Capital's fund to enable all unitholders to exit at net asset value (NAV) per unit less costs. 

According to LIM Advisors, its proposal would benefit other unitholders as the risk was high that the historical discount would return if the fund continued to operate and a large discount was also likely to persist. In the company's view, the responsible entity (RE) of AGF -- AMP Capital Funds Management Limited -- had "failed to take adequate action to deal with this discount".  

However, AMP Capital stressed that "the future of AGF is in unitholders' hands", but at the same time, it strongly urged them to carefully consider the resolution before exercising their right to vote. 

LIM also stressed that only the RE could initiate changes such as opening the fund, converting it to a unit trust with regular subscriptions and redemptions, or establishing regular fixed buybacks or tenders. On top of this, LIM Advisors repeated that it had considerable experience investing in Chinese A shares through the Qualified Foreign Institutional Investor (QFII) scheme, which requires permission from the Chinese government to repatriate capital from China, and it did not support AMP Capital's view that "it may take up to several years to get money out of China if AGF wound up". 

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"The Chinese A share market that AGF invests in is very liquid, and the Chinese A shares held by AGF are generally liquid. In our view, almost the entire portfolio of A shares could be liquidated in a few trading days without damaging the market price of the shares held," the letter said. 

This statement contradicted AMP Capital's stance, which confirmed that such a move might take between nine and 18 months before all the proceeds could be returned to unitholders. 

"If investors tell us they want to wind up AGF, we will do so and will continue to act in their interests to get their funds back to them as quickly as possible. However, independent tax advice has confirmed it may take between nine and 18 months before all proceeds could be distributed to unitholeders as a wind up," chair of AMP Capital Funds Management, Adam Tindall, said. 

"If unitholders want to remain invested in China -- and they have consistently told us they value this access in a structure that is listed -- our recommendation is they vote for the RE's resolution to keep the fund in operation with some enhancements that will improve the fund and make it more cost effective," he added. 

Additionally, AMP Capital China Growth Fund informed it had  concerns with aspects of the LIM letter, which "expresses the views of LIM and not the RE" and would carefully review the letter in conjunction with its advisers. The RE recommended that unitholders consider the LIM Letter in light of the explanatory memorandum and any additional information which the RE  provided. 

Also, LIM Advisors called on AMP Life to respect the decision of the New South Wales Supreme Court, stating that AMP Life should not vote its AGF units at the EGM held in July as it was a related party. 

"AMP Life is the largest unitholder of AGF, holding 36 per cent of units on issue, most of which were bought on launch in December 2006. Both AMP Life and AMP Capital are ultimately controlled by the same parent company, AMP Limited. 

"On June 27, 2016, the New South Wales Supreme Court ruled in a case called AMP Life versus AMP Capital that AMP Life cannot vote its AGF units at the EGM scheduled for July 28, 2016 because it is a related party. AMP Life is now appealing this decision." the letter said.