Trustee for AMP Capitol China Grwth Fund (ASX: AGF) could be wound up after a $2.7 billion Hong Kong Hedge Fund targeted the investment company.
The AMP China Fund has traded at a massive discount to the underlying net tangible asset (NTA) base of around 20% since listing in 2006 – no doubt disappointing investors. The fund invests in China A-shares, which have plunged recently. But the AMP China Fund has seen its share price fall even further, and now trades at a 30% discount to its underlying NTA.
LIM Advisors, founded by a well-known investor George Long, has taken an interest and holds 13% of the AMP China Fund. The hedge fund reportedly put AMP Capital on notice last month, threatening to call a meeting of unitholders if AMP failed to come up with a plan to address the underperformance of the China Growth Fund by the end of August.
AMP has two options. Wind the fund up – sell the underlying assets and return the proceeds to unitholders is the first option. That could see unitholders receive close to the net tangible asset value – well above today's share price – which may be a potential arbitrage opportunity. Trustee for AMP Capital China Grwth Fund current trades at around $1.33, but according to its last ASX notice, the NTA at the end of July 2015 was $1.76. That suggests 32% upside if the fund assets were sold, but could change.
The risk is that the fund is restructured or made open-ended. The fund could shrink in size by buying back units, or change its focus to broaden its investing mandate. In that situation, investors looking for the arbitrage could be sadly disappointed. One thing you can be sure of, AMP Capital would like to keep the fees it gets from running the fund, so won't be all that keen on closing it.
