Recently, Magellan Financial Group Ltd (ASX: MFG) announced about the launch of a new ASX-listed investment vehicle, the Magellan Global Trust (Trust). The Trust is expected to be listed on the ASX (ASX code: MGG) and will be managed by Magellan Asset Management Limited. This is expected to be the biggest ASX float this year with >$1 billion listing. The Trust will be taken care by Hamish Douglass and Stefan Marcionetti and will draw upon Magellan’s investment expertise in global equities. The Offer opened on 29 August 2017 and the Broker Firm Offer and Public Offer is expected to close on 22 September 2017, whilst the Priority Offer is expected to close on 29 September 2017. Following completion of the Offer, the Trust’s units will comprise fully paid ordinary units (Units) and Class A Units.

Highlights of the Magellan Global Trust:

·         Investment in a focussed portfolio at a discounted price: The investment objectives of the Trust are to achieve attractive risk-adjusted returns over the medium to long-term, whilst reducing the risk of permanent capital loss. The Trust offers investors the opportunity to invest in a portfolio of high quality global companies and intends to target a 4% cash distribution yield per annum while benefiting from capital growth over the medium to long term. Investment philosophy is to invest in a focussed portfolio (15 - 35 investments) of the world’s best companies, and to invest at a discount to its assessment of each company’s underlying intrinsic value.

·         Deducing valuation as per current industry practice:The Trust’s Net Asset Value will be calculated daily using a framework for the valuation of financial instruments that is consistent with current industry practice and regulatory requirements.The Trust’s NAV is an estimate of the value of the Trust at the close of trading in each market in which the Trust invests. Once the Trust is admitted to the official list of ASX and units are quoted on ASX, unitholders will be able to sell and trade their units on ASX.

·         Minimum target but no maximum value:A Minimum Subscription of $250,000,000, which equates to approximately 166,700,000 Units, is required in order for the Offer to proceed while no maximum limit has been set that can be raised. For each applicant, the minimum subscription amount under the Offer is $2,250 which is equal to 1,500 Units (at the Offer Price of $1.50 per Unit). Subscriptions for units more than the minimum subscription amount must be made in multiples of 100 Units.

·         Priority Offer of Loyalty Units: An attractive feature of the Trust is the loyalty units, i.e., by participating in the Priority Offer, Priority Applicants may be eligible to receive valuable Loyalty Units based on the number of Units allotted to them under the Priority Offer. The Magellan Group will bear the economic cost of the Loyalty Units. This becomes attractive to Magellan investors.

·         Leveraging Magellan’s investment philosophy: Magellan launched its Global Equities strategy in 2007. As at 31 July 2017, Magellan has managed $41.3 billion in the strategy for high net worth, retail and institutional investors including on behalf of registered managed investment schemes. Hence, both the Trust and Magellan’s Global Equities strategy can leverage Magellan’s investment philosophy and investment processes. However, the Trust has a differentiated investment mandate from the broader Global Equities strategy.

On the other hand, it is to be borne in mind that this vehicle is based on investment in a more concentrated stock portfolio at a global level and may be more appealing to investors who are interested in global equities. Further, it carries the risk that the so generous incentives get tweaked over the medium and long term and yield lower returns. Keeping these worries aside, the so called Listed investment trust seems to have upgraded the model of the closed end listed investment vehicles and has already been welcomed by many in the industry given the key attractive features.

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