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Trust Insider: trust issues - the most successful of this year's IPOs
by James Carthew on Oct 01, 2013 at 00:01
All euro (and other foreign currency) exposure is hedged back into sterling. At the end of August 2013, 20% of the portfolio was exposed to the UK and the remainder spread across the rest of Europe, with the highest exposures being to Netherlands (24%) and Spain (20%).
Managing company TwentyFour Asset Management LLP was set up in 2008. The firm’s founders had set up a previous firm in June 2006, Synapse Investment Management LLP, which also managed funds investing in ABS. Unfortunately, when the credit crunch hit, although for the most part there was not much wrong with the underlying securities, many distressed sellers of ABS and similar assets began to drive down the mark to market valuations of these securities.
Synapse was forced to return cash to investors, but the managers could see that an attractive opportunity was emerging for new buyers of ABS. Prices had corrected to some degree by the time of the launch of TFIF but, recognising there was still a chance of making decent money and the opportunity might not be around forever, TwentyFour launched TFIF with a redemption date built in on the third anniversary after launch.
Two months before the third anniversary, shareholders will be able to elect to have their investment realised. All those opting to get their money back go into a separate pool and the manager works to achieve an orderly realisation of that part of the portfolio. At the moment, this is the only redemption date built into the structure, but the directors have indicated they will consider introducing further opportunities if the fund makes it past the three-year mark.
The redemption opportunity should help keep TFIF’s discount under control, but the fund has buy-back powers it can use if necessary.
Shareholders also get the chance to vote on an exit if the fund was not 85% invested within 12 months from launch (academic now because cash was just 1.4% of the fund at the end of August) or if the dividend target is not met in any reporting period. TFIF gets another tick in the good governance box from me because the manager charges a fee of 0.75% of the lower of net asset value (NAV) and market capitalisation, so it has an incentive to keep the discount down.
The dividend yield available from TFIF stacks up pretty well against most other debt funds and, in its next accounting year, ought to be in line with its closest competitor, Real Estate Credit Investments . The returns on the underlying assets tend to be linked to market interest rates so there is scope for returns to pick up if rates rise.
The shares are trading on a 4.2% premium to the last published NAV, which seems a bit rich for a fund that is happy to keep issuing new shares and has the power to do so but, all in all, I quite like the look of TFIF so far.
James Carthew is director of Sapient Research
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on Dec 10, 2013 at 12:57