- Investment Management by Morley Fund Management -

Article date: 12 February 2001

- Investment Management by Morley Fund Management -

"It has the ability to generate positive returns irrespective ofwhether markets are rising or falling and is therefore mostappropriately designed to combat the risk of capital erosion oftenassociated with other high yield products."

[David Keen, Director of Investment Trusts, Morley FundManagement]

UBS Warburg is sponsoring the first ever split capital closedended investment company incorporating a hedge fund element. Thisis also the first hedge fund developed by Morley Fund Management('Morley'). Morley Absolute Growth Investment Company Limited('MAGIC') is a new closed end investment vehicle with theinvestment objective to deliver a high and growing income whilst atleast maintaining capital value. The Company aims to achieve somecapital growth, irrespective of the direction of Pan-Europeanequity markets, through a partial investment in a hedge fund.

The Company's investment portfolio will be divided into twoparts, initially approximately 55% will be invested in the MorleyAlternative Strategy Fund PCC Ltd., a Pan European long/shortstrategy hedge fund concentrating primarily on the FTSE 350 andFTSE World Europe ex UK indices. The balance will be invested in anIncome portfolio consisting primarily of Investment Trust gearedordinary shares.

The classes of share capital will include:

  • Income Shares which will have an estimated initial annualisedgross dividend yield of 9.7% paid monthly and capital upliftentitlement from 85p to £1 over the life of the vehicle.
  • Units which will comprise one Income Share and one CapitalShare which will have an estimated initial annualised grossdividend of 8.25%, all dividends paid monthly, with the potentialfor capital appreciation from the hedge fund element.
  • Zero dividend preference shares will have a redemption yieldof 8.75% per annum and a 10 year life.
  • Capital Shares, representing 7.5% of the capital structure,will give shareholders 100% of the gains after meeting the capitalentitlement of the income shareholders. These shares potentiallyhave very significant upside.

Commenting on the launch, David Keen, Director of InvestmentTrusts at Morley Fund Management, said:

"MAGIC scores a number of firsts for the marketplace This is thefirst product which combines high initial yields with an investmentobjective designed to deliver absolute returns. It also presents anopportunity for smaller investors to gain participation in aspecific hedge fund whilst avoiding costly double charging normallybuilt into a fund of funds approach.

"The perception that all hedge funds are high risk is not true.The risk profile of the hedge fund has been specifically designedto meet the needs of this investment company and as suchincorporates a modified risk profile. The fact that hedge funds cango short as well as long allows the fund manager to control moreprecisely the fund's net market exposure with both longs and shortshaving the potential to add net returns irrespective of marketmovements.

"For too long, this opportunity has only been the privilege ofthe high net worth individuals and institutional investors. In thecurrent volatile markets, it is even more important that smallerinvestors are offered the opportunity to participate in a fundwhose investment objective is clearly designed to achieve absolutereturns."

Commenting on the outlook for Pan-European Equities, MikeBishop, Head of Pan-European equities at Morley Fund Management,said:

"The Pan European markets offer excellent opportunities. AtMorley, we have a great track record in stock selection inPan-European portfolios, and with the ability to go short there isthe potential to do even better."

Key features of MAGIC include:

  • Seeks to eliminate the risk of capital erosion normallyassociated with other high yield products through investment in ahedge fund.
  • A defined risk profile designed to meet the needs of theInvestment Company with a permitted level of gearing significantlybelow the average for the hedge fund industry.
  • Single fund strategy avoids double charging whilst deliveringhigh levels of investment transparency. This is the first splitcapital closed ended investment company to incorporate a hedgefund exposure available to the market.
  • The performance related fee will only be payable once a totalreturn of 10% per annum has been achieved. The fee will then be20% of the excess return.
  • Accesses the excellent Pan European performance track recordof Morley Fund Management, with £50 billion of Pan Europeanequities under management:
    • Pan European Equities 30 Stock fund (an institutional clientfund, launched April 1999) has returned 12.3% over 12 months and45.8% since inception vs returns of -1.9% and 25.3% respectivelyfrom the MSCI European Index.*
    • NU UK Growth Fund has returned 104.5%, 155.1% and 392.7%over 3, 5 and 10 years vs sector average returns of 34.6%, 87.5%and 271.4% respectively.**
    • NU European Equity Fund has returned 90.9%, 166.7% and447.5% over 3,5 and 10 years vs average sector returns of 66.9%,138.9% and 388.7% respectively.**
  • Management fee: The overall management fee will beapproximately 1.55% per annum made up of 1% per annum on incomeassets outside the hedge fund (approximately 45% of total assets),2% on the hedge fund itself (approximately 55% of totalassets).

* Source: Morley Fund Management internal to end of
December 2000

**Source: Lipper Reuters Hindsight, Basis: bid to bid,net income reinvested,
to end of December 2000


For further information please contact:

David Keen, Head of Investment Trusts
Morley Fund Management - 020 7809 6007

John Korwin Szymanowski
UBS Warburg Ltd. - 020 7568 4219

Louise Hatch/Gay Collins
Penrose Financial - 020 7786 4888

Notes to Editors

Morley Absolute Growth Investment Company Limited also has thefollowing features:

  • Fully qualifying for Isas
  • Available during the placing period to retail investors onlythrough IFAs and to institutional investors.
  • Minimum investment £5,000
  • Planned winding up date of 10 years from Launch (2011)
  • Incorporated in Guernsey with London and Channel Islandslistings
  • The capital structure of the split capital closed endedinvestment company (Morley Absolute Growth Investment Company)will consist of:
    • 42.5% income shares
    • 7.5% capital shares

      (These are also available in units of one capitalshare and one income share)

    • 7.5% zero dividend preference shares with a gross redemptionyield of 8.75% with a 10 year life
    • 10.0% synthetic bank finance, 7 years
    • 32.5% bank debt, 7 years

The invested assets will be deployed 55% in the hedge fund and45% in an income portfolio of investment trust shares.

CGU and Norwich Union merged on 30 May 2000 to create CGNU plc -the world's 6th largest insurer, the UK's largest insurance groupand one of the top-five life insurers in Europe with substantialpositions in other markets around the world.

CGNU's principal business activities are long-term savings,asset management and general insurance with worldwide premiumincome and retail investment sales of £26 billion and assets undermanagement of more than £200 billion.

The institutional fund management business of CGNU in the UKwill operate under the Morley brand whilst retail investmentbusinesses will operate under the Norwich Union brand.

Issued by Morley Fund Management and UBS Warburg Ltd.

UBS Warburg is a subsidiary of UBS AG, for the purposes of S.57of the Financial Services Act 1986. UBS Warburg Ltd. is regulatedin the UK by the Securities and Futures Authority. The value of aninvestment may go down as well as up. Individuals should seekadvice from an independent financial adviser as to the suitabilityof the product.

Morley Fund Management is a business name of Morley FundManagement Limited (incorporated in England with Registered No.1151805 and Registered Office 1 Poultry London EC2R 8EJ) andNorwich Union Investment Management Limited (incorporated inEngland with Registered No. 2152949 and Registered Office 8 SurreyStreet Norwich NR1 3NG) both regulated by IMRO and members of theCGNU Group.

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