Page 39 - DIY Investor Magazine | Issue 33

On the most basic level, it has a discount control mechanism that allows investors to redeem their shares at net asset value (NAV) once a year.
More notably, White Oak does not charge any management fees for running AIE. That may seem like a typo but it’s not. Day-to-day expenses are paid for by fees levied on White Oak’s other funds and the asset manager only takes a fee if AIE delivers outperformance.
Currently that translates into a 30% performance fee on any alpha (performance in excess of the benchmark) the trust delivers in NAV terms.
Significantly, from the shareholder’s point of view, outperformance is measured on a three year-long basis.
That means any outperformance is more likely to be the result of White Oak’s analysts, rather than some sort of short-term fluke derived from favourable market conditions.
LONG-TERM LOCK IN
A couple of other features may make this set up even
more attractive for shareholders. For one, the trust pays its performance fee in AIE shares. Half of those shares then have a lock-up period of three years.
That means, to really enjoy the fruits of their labour, the trust team has to deliver returns over a six-year period.
There is also no requirement to sell and White Oak has not sold any of the shares it received in performance fees, a sign the
managers believe in the trust’s long-term prospects.
To top this off, individual analysts working on the trust’s portfolio are paid according to their contribution to the trust’s performance.
The more an analyst’s picks improve the trust’s track record, the better their compensation from White Oak.
As with any investment trust, AIE’s set up isn’t perfect and it’s not going to protect investors from losses and Indian equities can be volatile, particularly at a time like this when geopolitical risks are high and the traces of the pandemic linger on.
But it is a unique attempt to find a middle ground which works for both investors and fund managers, and perhaps the only trust on the market today that won’t charge you anything if there is no outperformance.
Whether or not that will ensure the trust delivers outperformance is impossible to say but it’s a process that has worked for investors and White Oak so far, and it may appeal to those looking for options in what is an exciting part of the world for growth investors.
See the latest research on AIE here >
This is not substantive investment research or a research recommendation, as it does not constitute substantive research or analysis. This material should be considered as general market commentary.
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DIY Investor Magazine · Apr 2022