Pacific Horizon Investment Trust (PHI) has announced plans to introduce a performance-linked conditional tender offer that could see up to 25% of its issued share capital (excluding treasury shares) repurchased, depending on how the trust performs over the next five years.
The proposed tender offer, due to be assessed at the end of a performance period running from 31 March 2025 to 31 March 2030, will be triggered only if PHI underperforms its reference index – currently the MSCI All Country Asia ex Japan Index (total return in sterling) – over that period. The move represents a clear commitment by the board to make sure the trust is held accountable to long-term performance targets. It also provides shareholders with a route to partial liquidity at a price close to net asset value (NAV), should the trust fail to meet the benchmark.
Strong outperformance over the last five years
The announcement follows a strong period of performance for PHI. Over the five years to 31 March 2025, the trust delivered a NAV total return 74.5% ahead of the reference index, aided by a strong rotation into growth stocks following the COVID-related market collapse of March 2020. Performance in recent years has been more challenging as an environment of higher interest rates has weighed on the sorts of growth stocks PHI favours. Nonetheless, buoyed by its five-year record of outperformance, the board expressed confidence in the ability of the investment manager to continue delivering above-benchmark returns. The introduction of a formal performance condition linked to a potential liquidity event is designed to align the interests of the manager and shareholders over the longer term. If you want to read more about PHI, we published a note in March, which you can click here to read.
Discount control remains in focus
In addition to the proposed tender offer, PHI’s board reiterated its ongoing commitment to active discount management. The trust will continue to use share buybacks when deemed appropriate, with the ambition of maintaining the discount to NAV in single digits on a sustainable basis under normal market conditions.
[QD comment MR: The conditional tender offer is a shareholder-friendly move that should help to focus the manager’s attention on driving outperformance and also gives shareholders comfort that there is a route to a partial exit, close to NAV, if relative performance disappoints over the next five years.
PHI’s outperformance over the last half decade – 74.5% ahead of the benchmark – is impressive, and sets a high bar going into the next period, but the board is clearly confident that the manager can continue to outperform and has set a sensible time frame over which to measure this.
We are very pleased to see that it is not a 100% tender, which seem to be increasingly in vogue, as this can leave an investment company a hostage to fortune if its asset class is out of favour when a tender falls due – forcing trusts to sell swathes of securities at depressed valuations when they should be building positions to take advantage of the opportunity. Thankfully PHI’s 25% tender strikes a balance that is better for shareholders’ long-term interests.
We think that the conditional tender offer, coupled with the ongoing commitment to buyback shares and targeting a single-digit discount, should also help keep a lid on any persistent gap between PHI’s share price and its NAV. We therefore welcome these measures, which we think should support PHI’s rating over the long term.]
