Atlantis Japan Growth Fund hits back at hedge fund attack

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The board of Atlantis Japan Growth Fund has hit back at calls for shareholders to vote to liquidate or restructure the fund, arguing it has addressed concerns raised, including expediting the appointment of a new lead fund manager.

This week ShareSoc, the UK Individual Shareholder Society, recommended shareholders support the requisition put forward by hedge fund LIM Advisors, at a vote on 3 May.

LIM Advisors issued a letter to shareholders on 19 April, raising concerns about the fund’s underperformance compared to the MSCI Japan SMC Index, the fund’s high discount, its low liquidity and its shrinking size. It also raised corporate governance concerns regarding the long tenure of several board members.

In response to LIM Advisors’ criticisms about the fund’s performance, the board says that the company’s benchmark was Topix, not the MSCI Japan SMC Index. The fund has tracked Topix over one and three years, and beaten it over five years.

The fund delivered -1.3 per cent for the past year, 24.1 per cent over three years and 84.9 per cent over five years, according to FE Trustnet.

Three independent advisory firms – Pensions & Investment Research Consultants, Glass Lewis and ISS – have recommended shareholders vote against LIM Advisors’ resolutions, Atlantis Japan Growth Fund’s board pointed out in a statement issued yesterday.

In a market update this week, PIRC said it supported the portfolio manager change, which will see Taeko Setaishi lead the fund from 1 May and added that the company had “effective discount control mechanisms in place”.

Setaishi’s Atlantis Japan Opportunities fund has returned 61.5 per cent over three years, compared to the benchmark’s 16.5 per cent, according to FE Trustnet.

“Setaishi intends to take advantage of AJGF’s closed-end structure with the objective of providing superior investment returns, relative to her open-ended fund, over the longer term,” the board said in its statement.

The board has introduced a redemption facility and discount control mechanism to increase liquidity and maintain an average single digit discount. An “embedded subscriptions right” mechanism was introduced as a way to grow the fund, it said.

The board failed to respond to criticisms regarding the tenures of two board directors, Eric Boyle and Takeshi Murakami, who have served 15 years and eight years respectively. UK corporate governance codes recommend non-executive board directors serve no more than nine years.

Andrew Martin Smith, who has been a director for 13 years, will retire at this year’s AGM, the board pointed out.

Noel Lamb, chairman of the fund since 2014, said: “We have already taken action to manage the company’s discount. In 2013, we introduced the discount control mechanism, which has helped limit the company’s discount to an average of 8.0 per cent, notably narrower than the average discount for its peer group of 9.5 per cent.

“The board is confident that, with the change of the lead fund manager, the discount control mechanism in place and the continuation vote in 2019, these measures will enable us to further narrow the share price discount and ultimately grow the company.”