The fund managers of Ashoka WhiteOak Emerging Markets (AWEM) are to get their first payment since the £78m investment trust launched three years ago.
Annual results show the team at White Oak Capital Management in Mumbai, led by founder Prashant Khemka, have generated a £1.17m performance fee for their impressive index-beating returns since launch in May 2023.
Like its big sister, the £419m Ashoka India (AIE), AWEM does not pay a conventional annual management fee to its fund managers, hence the “no-charge” tag sometimes applied to it. Khemka, a former Goldman Sachs star, and his colleagues are only paid for beating their benchmark over three-year periods.
Today’s publication of AWEM’s third set of report and accounts triggers the payment which is likely to be mostly in new shares in the trust, half of which the managers must hold for three years.
In the latest financial year to 31 March the trust generated its best annual return yet of 26.4%. Despite that, the managers will not be paid for the performance as it fell slightly short of the 26.8% return of the MSCI Emerging Markets index.
However, the managers have earned the fee from the previous two years when the portfolio’s gains of 8.8% and 11.8% beat the benchmark by 3% and 3.9% respectively. Over the first three years the investments grew a total of 53.9%, outpacing the MSCI index which advanced 45.2%.
Under their investment management agreement, the White Oak team earns 30% of the excess return but with the payout capped at 12% of AWEM’s assets.
“The board believes that the company’s fee structure in its totality creates a very strong alignment of interest with the investment manager and results in shareholders only paying fees to the investment manager when it has delivered positive relative outperformance of the benchmark,” said chair Martin Shenfield.
Unlike many trusts, shares in AWEM often trade at a small premium of about 2% above the net asset value (NAV) of its investments. This partly reflects investor demand as a result of the strong performance, but also an annual redemption facility letting shareholders sell at NAV.
The share price premium enables the trust to regularly issue new shares, which increased by nearly 16% in the last financial year. That combined with the performance has lifted AWEM from a modest start of £30.5m with net assets jumping to £77.4m following a further 21% gain in the past three months.
The trust has benefited from the surge in spending on artificial intelligence which has boosted many of Asia’s big technology companies. These include Taiwan Semiconductor Manufacturing Corporation, AWEM’s biggest holding at 11.4% of assets, and Samsung Electronics of South Korea, its second at 9.2%.
Although the top 10 account for nearly 40% of assets, the portfolio is highly diversified with around 200 investments, most of them much smaller. AWEM is largely focused in Asia with 82.5% invested in the region.
Our view
James Carthew, QuotedData’s head of investment company research, said: “It is encouraging that AWEM, which started life with just £30.5m of assets, has been able to grow that to £77.4m through performance and share issuance. A return over the reporting period that is almost in line with the benchmark is alright, although not good enough to earn the manager a fee. However, we should point out that peers such as Templeton Emerging Markets (TEM) and Fidelity Emerging Markets (FEML) fared much better. Since the period end, AWEM’s relative performance has improved. Hopefully, by this time next year it will be through the £100m mark.”
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