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Genesis Emerging (GSS)

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Thursday 01 July, 2021

Genesis Emerging

Change of Management Arrangements & Tender Offer

RNS Number : 7530D
Genesis Emerging Markets Fund Ld
01 July 2021
 

This announcement contains inside information for the purposes of Article 7 of the Market Abuse Regulation (EU) No 596/2014. This announcement has been authorised for release by the Company's Board of Directors.

 

Change of Management Arrangements and Tender Offer

 

 

Genesis Emerging Markets Fund Limited 

Legal Entity Identifier: 213800HWWQPUJ4K1GS84

 

The Board of Genesis Emerging Markets Fund Limited (the "Company") is pleased to announce that, after an extensive review of the Company's management arrangements, it intends to appoint FIL Investment Services (UK) Limited ("Fidelity International") as the Company's manager.

 

In connection with the appointment of Fidelity International, the Company intends to update its investment policy to permit investment in a diversified portfolio of equity, equity-linked securities and derivative instruments which provide exposure to companies, either based in or listed in emerging markets or with assets, operations, income or revenues that are predominantly derived from emerging markets, ranging from small and medium sized to large and mega cap, both listed and unlisted (the "New Investment Policy").  

 

The Company also proposes to amend its name to Fidelity Emerging Markets Limited (the "Change of Name").

 

The Board believes that many shareholders will wish to continue with their investment in the Company. However, further to the commitment made in 2018, the Company will make a tender for up to 25 per cent. of the shares in issue at a two per cent. discount to the prevailing net asset value per ordinary share (the "Tender Offer"), so that shareholders wishing to realise part, or potentially all, of their investment in the Company will have the opportunity to do so.  

 

The New Investment Policy, Change of Name, and the Tender Offer (together the "Proposals") will each be subject to shareholder and applicable regulatory approvals. The Company intends to seek shareholder approval of the Proposals at an extraordinary general meeting of the Company expected to be held in August 2021 (the "General Meeting"). The appointment of Fidelity International will be conditional on approval of the New Investment Policy and the Change of Name will be conditional on the appointment of Fidelity International becoming effective. The Tender Offer will not be conditional on approval of the New Investment Policy or the Change of Name.

 

Benefits of the Proposals

 

The Board believes that the Proposals will have the following benefits for the Company's shareholders.

 

· Access to Fidelity International's top performing emerging markets strategy: Fidelity International benefits from global coverage which is complemented with local expertise

 

· Significant reduction in management fee: a reduction from the existing 0.90 per cent. of net asset value to 0.60 per cent. of net asset value

 

· Nine month fee waiver: a significant cost contribution from Fidelity International to minimise cost impact on shareholders as a result of the change of investment management arrangements

 

·   Brand recognition and increased marketing focus: access to an award-winning investment trust manager with extensive marketing capabilities led by a dedicated marketing team

 

· On-going discount control: a commitment to both a performance-triggered tender offer in 2026 and the introduction of a continuation vote for the Company to be held every five years

 

·   Net asset value accretion: it is expected that the Proposals should be accretive for remaining shareholders following completion of the Tender Offer

 

The Board would like to thank Genesis Investment Management, LLP ("Genesis") for their commitment and hard work over the past three decades. Following long discussions with Genesis, the Board fully understands and appreciates Genesis' focus on its institutional mandates.

Information regarding Fidelity

 

Fidelity International is a private company with approximately $740 billion under management as at 31 March 2021 and is one of the largest managers of UK listed investment trusts and companies by assets, managing five investment trusts.

 

Fidelity International has agreed to dedicate significant marketing resources to the promotion of the Company. 

 

Fidelity International's emerging markets capability

Fidelity International has developed one of the industry's largest research operations, with 425 investment and sustainable investing resources, covering equities, fixed income, real estate, multi-manager, technical, quantitative and derivatives and spread across various locations globally. 

This underpins the strength of Fidelity International's emerging markets platform, which draws on the team's extensive knowledge and an array of complementary skills. Expertise relevant to strategy equity research, regional specialisation, derivatives expertise, sustainable investing and deal sourcing.  Investment professionals are strategically located in London, Singapore, Hong Kong, Shanghai and Mumbai.

A team of nine portfolio managers are responsible for $27 billion, across a series of global, regional and thematic emerging market strategies.

Fidelity International celebrates its 30th anniversary as an investment company manager this year, and in that time has grown the assets under management of its five UK investment trusts to around £5 billion and established a diverse and growing investor base. Since 2010, Fidelity International has raised £700 million of new capital across five investment companies.

Fidelity International's approach for the Company

Fidelity International will adopt an all-cap Global Emerging Markets strategy with enhanced investment powers which seeks to exploit a broad range of opportunities. The managers adopt an active 'extension' investment style, benefitting from an extended toolset versus a traditional long-only equity fund:

· Equities: Predominantly invested in equity securities that offer a significant degree of absolute upside to each stock's specific target price. The portfolio managers will seek opportunities across the market cap spectrum, geographies, and consider listed companies, IPOs and unlisted investments.

· Short extensions: Offering the ability to access positive returns from securities perceived to be exposed to material absolute share price declines via the use of short equity derivative positions.

· Long extensions: Providing the ability to deploy additional long equity exposure through the use of equity derivative instruments to further enhance performance from the stocks with the greatest upside potential, and also to offset the reduction in equity exposure introduced by the fund's short positions.

· Other instruments: Access other instruments to take best advantage of perceived sources of return and to control risk. These instruments include equity option positions to both capture option premium as well as to control active risks in the portfolio.

 

Fidelity International's Emerging Markets Investment Philosophy

Fidelity International believes that many emerging market companies can sustain high levels of economic growth for years to come, driven by attractive demographic profiles, immature markets, an abundance of untapped natural resources, and generally low levels of indebtedness. However, whilst these positive attributes provide a fertile environment for companies to grow their earnings, it is critical to ensure that each company Fidelity International invests in can generate superior and sustainable returns on assets that permit them to fund the growth of their business, withstand competitive pressures and achieve attractive returns for minority shareholders.

  With this in mind, Fidelity International defines high quality companies as those that exhibit:

· Quality - high quality, well capitalised companies capable of achieving superior returns on assets, and where strong free cash flow generation can be used to either self-fund future growth or pay dividends to shareholders

· Consistency of returns - dominant companies that can maintain superior levels of growth and profitability resulting from a sustainable competitive advantage, such as market share, technology, or cost leadership; companies which exhibit a solid track record of delivering attractive total shareholder returns over time

· Reasonable price - attractive valuations that understate the intrinsic value of a company. Target prices are determined for every stock considered for the portfolio, reflecting each company's sustainable level of earnings power across the economic cycle and an appropriate valuation multiple.

Conversely, it is those weaker peers who are unable to compete with the strongest franchises that are likely to fall by the wayside. Using short positions, these weaker businesses form some of the additional investment opportunities that Fidelity International can take advantage of, as an additional source of performance.

 

Fund managers

Nick Price led the development of Fidelity International's Emerging EMEA group, launching the team's first portfolio in 2005. The investment process has been consistently used by the current team since it was first adopted in 2005 and remains the cornerstone of Fidelity International's emerging markets equity strategies. It was subsequently deployed by the group on a global basis in 2009. In 2011, Nick developed and led the launch of the FAST-Emerging Markets strategy, for which he remains Lead Portfolio Manager.

Chris Tennant, Assistant Portfolio Manager for the FAST-Emerging Markets strategy, joined Fidelity International in January 2011 as an Equity Analyst, covering European Transportation. In October 2012, he rotated onto the London based EM team to cover EMEA and Latin America Metals & Mining stocks.  In January 2015, Chris was chosen by Nick to undertake a newly created EM shorting analyst role. Since then, they have worked in close partnership to identify opportunities for the short book.

Tender Offer

 

The Company will make the Tender Offer to provide a cash exit at a two per cent. discount to the prevailing net asset value per share in respect of up to 25 per cent. of the Company's issued share capital, in fulfilment of the Company's commitment to do so if it did not deliver net asset value total return outperformance over the 5 years ending 30 June 2021 in excess of the Company's benchmark total return.

 

All shareholders (other than certain overseas shareholders) ("Eligible Shareholders") will be able to tender all, part or none of their respective shareholdings in the Tender Offer. All valid tenders in respect of up 25 per cent. of each Eligible Shareholder's shareholding will be accepted in full. Tenders in excess of 25 per cent. of an Eligible Shareholder's shareholding will be accepted to the extent that other shareholders tender less than 25 per cent. of their respective shareholdings, with such excess tenders being satisfied pro rata in proportion to the amount tendered by each relevant Eligible Shareholder in excess of 25 per cent. of its shareholding.

 

The Tender Offer will be funded by redemption of a portion of the Company's investments.

 

The Tender Offer will be made conditional on shareholder approval being obtained at the General Meeting. 

 

The Board and Fidelity International are satisfied that, following the Tender Offer, the Company will remain an attractive size with sufficient liquidity.

 

Commitment to future performance-triggered tender offer

 

The Board intends that if the Company's NAV total return over 5 years ending 30 September 2026 does not exceed the Company's benchmark NAV total return, the Company will undertake a tender offer for up to 25 per cent. of the Company's issued share capital (excluding any shares held in treasury).

 

Continuation vote

 

The Company has committed to hold a continuation vote in 2026 and every five years thereafter.

 

Board composition

 

Helene Ploix completes her nine years tenure this year. Sujit Banerji will retire at the end of his nine years tenure next year. The Board is in the process of recruiting a new non-executive chair on or before the Annual General Meeting to be held in November 2022, at which time Helene Ploix will retire from the Board. The Board also plan to recruit an additional non-executive director in the first half of 2022 to replace Sujit Banerji. Russell Edey has indicated his intention to stand down in 2023, at that point, the Board will reduce to five members.

 

Circular

 

A circular regarding the Proposals, including a notice convening the General Meeting and details of the New Investment Policy and the Tender Offer, will be published in due course.

 

Hélène Ploix, Chair of Genesis Emerging Markets Fund Limited, commented:

 

"Following a thorough review of its investment management arrangements and after considering a range of strong candidates in a competitive process, it was clear to the Board that Fidelity has the depth of expertise in emerging markets and in the management of investment trusts, and that the Company would also benefit considerably from Fidelity's brand, and its ability to attract new shareholders with its significant marketing resource. We look forward to working with the new portfolio managers and the wider team."

 

For further information, please contact:

 J.P. Morgan Administration Services (Guernsey) Limited

+44 (0) 1481 758 620

 Company Secretary

 

 

 

 J.P. Morgan Cazenove

+44 (0) 207 742 4000

 William Simmonds

 Rupert Budge

 

 

 Jefferies International Limited

+44 (0) 20 7029 8000

 Neil Winward

 

 Gaudi Le Roux

 

 

 

1 July 2021

 

 

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