It has been a month since Magellan Financial Group Ltd (ASX: MFG) formally announced its initial public offering (IPO) open for applications to purchase units in its new Magellan High Conviction Trust (ASX: MHH). The closing date to take up the offer is 27 September 2019, with Magellan looking to raise a minimum of $250 million through this offer.
The Magellan High Conviction Trust will be replicating the strategy of the already existing (unlisted) Magellan High Conviction Fund created back in 2013. The newly created Trust will invest in a concentrated portfolio of 8 to 12 high-quality global companies, weighted towards Magellan’s highest conviction ideas.
As of June 2019, holdings of the high conviction strategy included the likes of Visa Inc (NYSE: V), Berkshire Hathaway (NYSE: BRK.B), SAP SE (NYSE: SAP) and LVMH (EPA: MC).
Magellan co-founder Hamish Douglass and Chris Wheldon will be the portfolio managers of the High Conviction Trust.
The video below comes from an episode of The Australian Investors Podcast featuring Hamish Douglass himself. In this snippet, Hamish details his process for identifying and valuing his all-star ‘football team’ of high-quality companies to buy and hold:
Benefits Of The Offer
The fund aims to provide capital growth over the medium to long term with a Target Cash Distribution yield of 3% per annum, paid twice-yearly.
A distribution reinvestment plan (DRP) will be made available with Magellan offering a 5% discount to the net asset value (NAV) per unit in respect of the Target Cash Distribution.
The Offer consists of the Priority Offer, the Wholesale Offer, and the General Public Offer. Each of these attract different eligibility criteria and entitle the applicant to receive Loyalty Units based on the number of units allocated through the offer as follows:
- Priority Offer – 7.5%
- Wholesale Offer – 2.5%
- General Public Offer – 2.5%
Units will be allocated on 11 January 2020. If you decide to sell units before 31 December 2019 this will affect how many Loyalty Units will be issued.
Deadline Date For Applications Is Closing In
Being already invested in the Magellan Global Trust (ASX: MGG), I am still deciding whether to participate in the Priority Offer due to similarities between both Trusts.
Click here to read my previous article where I outlined why I decided to buy units in the Magellan Global Trust.
There is plenty to like about this current offer, especially the fact that MHH will be offering Loyalty Units. At this stage, I am currently weighing up both the management fee (1.5%) and performance fee (10% of excess returns above 10%) being charged before making my final decision whether to take up the Priority Offer.
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Disclosure. At the time of writing, Robert owns units in Magellan Global Trust (ASX: MGG) and is eligible to participate in the Priority Offer for the Magellan High Conviction Trust (ASX: MHH)