Watermark Funds Management has embarked on a complete overhaul of its business, moving to convert one of its listed investment companies to an unlisted unit trust and proceeding with plans to withdraw from global equities altogether.
The company, which has around $700 million of assets, announced yesterday that it has implemented a scheme implementation deed with Equity Trustees. Execution of the deed will see its LIC Watermark Market Neutral Fund delisted from the ASX.
Watermark has acknowledged that the LIC has persistently traded at a discount to its net asset value, with the discount ranging from 10 to 20 per cent. A buyback introduced in 2017 did not do much to change things.
The fund was launched in 2013 with an $80 million capital raising. Since then Watermark has not been able to raise additional funds and, as a result, the fund has been illiquid.
Watermark also concedes that the fund is too small to be run efficiently, given a number of fixed costs involved in operating a listed company.
Equity Trustees has been appointed responsible entity of the new unlisted trust, which will be a registered managed investment scheme and will appoint Watermark Funds Management as investment manager.
There still a number of steps to complete in the process, including an independent expert’s report on the transaction, a shareholder vote, ASIC and court approval.
Watermark says it is working with its advisers to ensure an efficient transfer of the company’s assets into the new trust.
There are no plans to de-list the company’s other Australian equity LIC, Australian Leaders Fund Ltd.
Watermark also announced yesterday that another LIC, Watermark Global Leaders Fund Ltd, will be converted to an unlisted unit trust in similar fashion, to be followed by a capital return to unitholders.
Watermark chief investment officer Justin Braitling says: “We embarked on an ambitious plan four years ago to build a global equities capability which would complement our Australian business.
“While this has ultimately strengthened our investment process and afforded us a broader perspective on asset markets, it has been a strain on the resources of the business and we have not achieved the results for our investors that we had hoped.”