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Morley to hedge market via split capital fund

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UK – UBS Warburg is sponsoring UK investment house Morley Fund Management’s first hedge fund: a split capital closed-ended investment company incorporating a hedge fund element.

The Morley Absolute Growth Investment Company (MAGIC), incorporated in Guernsey, is a closed-end vehicle with the objective of delivering income growth irrespective of the direction of pan-European equity markets - maintaining capital value through a partial investment in a hedge fund.

“ This is the first product, which combines high initial yields with an investment objective designed to deliver absolute returns. It also presents an opportunity for smaller investors to gain participation in a specific hedge fund whilst avoiding costly double charging normally built into a fund of funds approach,” says David Keen, director of investment trusts at Morley.

The company’s investment portfolio will be divided into two parts, with an initial 55% in the Morley Alternative Strategy Fund, a pan-European long/short strategy hedge fund concentrating mainly on FTSE350 and FTSE World Europe ex UK indices.
The balance will be invested in an income portfolio consisting primarily of investment trust geared ordinary shares.

“ The pan-European markets offer excellent opportunities. At Morley, we have a great track record in stock selection in pan-European portfolios, and with the ability to go short there is the potential to do even better,” says Mike Bishop, head of pan-European equities at Morley.

Share capital will be classified in different ways, according to the sponsors. Firstly, there will be income shares, which should yield an estimated annual gross dividend of 9.7% paid monthly and a capital uplift entitlement from 85p to £1 over the life of the vehicle.

Secondly, capital shares, representing 7.5% of the capital structure, should give shareholders 100% of the gains after meeting the capital entitlement of the income shareholders.

Thirdly, units comprising an income share and a capital share are expected to have an estimated initial annualised gross dividend of 8.25% paid monthly. Lastly, zero dividend preference shares will have a redemption yield of 8.75% a year and a 10-year life.

The performance related fee will be payable once a total return of 10% per annum has been achieved. The fee will then be 20% of the excess return. The overall management fee is expected to be around 1.55% per annum: 1% on income assets outside the hedge fund and 2% on the hedge fund.
Minimum investment in the fund will be £5,000.

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