The Listed Investment Companies and Trusts Association (LICAT) has hit back at criticism from Monash Investors that their closed-ended structure is difficult to run.
Last week, Monash listed its Absolute Investment Company as an exchange traded managed fund after admitting it was a mistake to opt for a LIC structure, a restructure that had taken three years to complete.
“There are lots of characteristics of LICs that were not obvious to us at the time such as tax and franking credit rules and they were hard to explain to clients,” portfolio manager, Simon Shields, said. “We wouldn’t choose a LIC if we were setting it up now.”
However, LICAT disputed this criticism and said LICs were suitable for investors who were looking to “steadily and carefully invest over the long term”. It was therefore unsuitable for investors who were looking to withdraw their capital easily or investment managers without a steady pool of long-term clients.
The structure, it said, was therefore perhaps unsuitable for Monash although this did not detract from their overall viability.
“Monash is a boutique investment manager running a highly concentrated, long short portfolio, with which the investing public have limited familiarity. While they have recently generated favourable returns, there evidently remained an ongoing mismatch between the volume of the patient and willing buyers of their shares and the volume of existing investors seeking to sell,” it said.
“Monash should perhaps acknowledge and appreciate the difficulties of establishing a committed clientele of investors – a challenge that must be faced by all investment funds – whatever their structure.
“The hundreds of thousands of LIC investors who have benefitted from investment in the many well-run LICs in Australia over many decades would disagree with Monash’s comments.”
It said the LIC structure had lower transactional costs than ETMFs, a fixed capital structure and the ability to seek higher returns.