"It has the ability to generate positive returns irrespective of whether markets are rising or falling and is therefore most appropriately designed to combat the risk of capital erosion often associated with other high yield products."
- Investment Management by Morley Fund Management -
"It has the ability to generate positive returns irrespective of whether markets are rising or falling and is therefore most appropriately designed to combat the risk of capital erosion often associated with other high yield products."
(David Keen, Director of Investment Trusts, Morley Fund Management)
UBS Warburg is sponsoring the first ever split capital closed ended investment company incorporating a hedge fund element. This is also the first hedge fund developed by Morley Fund Management ('Morley'). Morley Absolute Growth Investment Company Limited ('MAGIC') is a new closed end investment vehicle with the investment objective to deliver a high and growing income whilst at least maintaining capital value. The Company aims to achieve some capital growth, irrespective of the direction of Pan-European equity markets, through a partial investment in a hedge fund.
The Company's investment portfolio will be divided into two parts, initially approximately 55% will be invested in the Morley Alternative Strategy Fund PCC Ltd., a Pan European long/short strategy hedge fund concentrating primarily on the FTSE 350 and FTSE World Europe ex UK indices. The balance will be invested in an Income portfolio consisting primarily of Investment Trust geared ordinary shares.
The classes of share capital will include:
- Income Shares which will have an estimated initial annualised gross dividend yield of 9.7% paid monthly and capital uplift entitlement from 85p to Ł1 over the life of the vehicle.
- Units which will comprise one Income Share and one Capital Share which will have an estimated initial annualised gross dividend of 8.25%, all dividends paid monthly, with the potential for capital appreciation from the hedge fund element.
- Zero dividend preference shares will have a redemption yield of 8.75% per annum and a 10 year life.
- Capital Shares, representing 7.5% of the capital structure, will give shareholders 100% of the gains after meeting the capital entitlement of the income shareholders. These shares potentially have very significant upside.
Commenting on the launch, David Keen, Director of Investment Trusts at Morley Fund Management, said:
"MAGIC scores a number of firsts for the marketplace This is the first product which combines high initial yields with an investment objective designed to deliver absolute returns. It also presents an opportunity for smaller investors to gain participation in a specific hedge fund whilst avoiding costly double charging normally built into a fund of funds approach.
"The perception that all hedge funds are high risk is not true. The risk profile of the hedge fund has been specifically designed to meet the needs of this investment company and as such incorporates a modified risk profile. The fact that hedge funds can go short as well as long allows the fund manager to control more precisely the fund's net market exposure with both longs and shorts having the potential to add net returns irrespective of market movements.
"For too long, this opportunity has only been the privilege of the high net worth individuals and institutional investors. In the current volatile markets, it is even more important that smaller investors are offered the opportunity to participate in a fund whose investment objective is clearly designed to achieve absolute returns."
Commenting on the outlook for Pan-European Equities, Mike Bishop, Head of Pan-European equities at Morley Fund Management, said:
"The Pan European markets offer excellent opportunities. At Morley, we have a great track record in stock selection in Pan-European portfolios, and with the ability to go short there is the potential to do even better."
Key features of MAGIC include:
- Seeks to eliminate the risk of capital erosion normally associated with other high yield products through investment in a hedge fund.
- A defined risk profile designed to meet the needs of the Investment Company with a permitted level of gearing significantly below the average for the hedge fund industry.
- Single fund strategy avoids double charging whilst delivering high levels of investment transparency. This is the first split capital closed ended investment company to incorporate a hedge fund exposure available to the market.
- The performance related fee will only be payable once a total return of 10% per annum has been achieved. The fee will then be 20% of the excess return.
- Accesses the excellent Pan European performance track record of Morley Fund Management, with Ł50 billion of Pan European equities under management:
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- Pan European Equities 30 Stock fund (an institutional client fund, launched April 1999) has returned 12.3% over 12 months and 45.8% since inception vs returns of -1.9% and 25.3% respectively from the MSCI European Index.*
- NU UK Growth Fund has returned 104.5%, 155.1% and 392.7% over 3, 5 and 10 years vs sector average returns of 34.6%, 87.5% and 271.4% respectively.**
- NU European Equity Fund has returned 90.9%, 166.7% and 447.5% over 3,5 and 10 years vs average sector returns of 66.9%, 138.9% and 388.7% respectively.**
- Management fee: The overall management fee will be approximately 1.55% per annum made up of 1% per annum on income assets outside the hedge fund (approximately 45% of total assets), 2% on the hedge fund itself (approximately 55% of total assets).
* Source: Morley Fund Management internal to end of
December 2000
**Source: Lipper Reuters Hindsight, Basis: bid to bid, net income reinvested,
to end of December 2000
~Ends~
For further information please contact:
David Keen, Head of Investment Trusts
Morley Fund Management - 020 7809 6007
John Korwin Szymanowski
UBS Warburg Ltd. - 020 7568 4219
Louise Hatch/Gay Collins
Penrose Financial - 020 7786 4888
Notes to Editors
Morley Absolute Growth Investment Company Limited also has the following features:
- Fully qualifying for Isas
- Available during the placing period to retail investors only through IFAs and to institutional investors.
- Minimum investment Ł5,000
- Planned winding up date of 10 years from Launch (2011)
- Incorporated in Guernsey with London and Channel Islands listings
- The capital structure of the split capital closed ended investment company (Morley Absolute Growth Investment Company) will consist of:
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- 42.5% income shares
- 7.5% capital shares
(These are also available in units of one capital share and one income share)
- 7.5% zero dividend preference shares with a gross redemption yield of 8.75% with a 10 year life
- 10.0% synthetic bank finance, 7 years
- 32.5% bank debt, 7 years
The invested assets will be deployed 55% in the hedge fund and 45% in an income portfolio of investment trust shares.
CGU and Norwich Union merged on 30 May 2000 to create CGNU plc - the world's 6th largest insurer, the UK's largest insurance group and one of the top-five life insurers in Europe with substantial positions in other markets around the world.
CGNU's principal business activities are long-term savings, asset management and general insurance with worldwide premium income and retail investment sales of Ł26 billion and assets under management of more than Ł200 billion.
The institutional fund management business of CGNU in the UK will operate under the Morley brand whilst retail investment businesses will operate under the Norwich Union brand.
Issued by Morley Fund Management and UBS Warburg Ltd.
UBS Warburg is a subsidiary of UBS AG, for the purposes of S.57 of the Financial Services Act 1986. UBS Warburg Ltd. is regulated in the UK by the Securities and Futures Authority. The value of an investment may go down as well as up. Individuals should seek advice from an independent financial adviser as to the suitability of the product.
Morley Fund Management is a business name of Morley Fund Management Limited (incorporated in England with Registered No. 1151805 and Registered Office 1 Poultry London EC2R 8EJ) and Norwich Union Investment Management Limited (incorporated in England with Registered No. 2152949 and Registered Office 8 Surrey Street Norwich NR1 3NG) both regulated by IMRO and members of the CGNU Group.