First State funds ‘won’t follow Lau and re-open’

Investment Adviser revealed last week that First State had re-opened Martin Lau’s £372m Greater China Growth fund, more than four years after it was closed to new investors.

The removal of restrictions imposed in January 2012 also marked the first re-opening of a First State fund since the company split up its First State Stewart business last year.

Suggestions had been made that the greater flexibility of the two new businesses, Stewart Investors and First State Stewart Asia (FSS Asia), may have played a role – leading to speculation over changes to the Stewart Investors soft-closed funds.

These include Jonathan Asante’s £2.2bn Global Emerging Market Leaders vehicle and others such as the £710m Stewart Investors Asia Pacific product.

However, due to a potential influx of assets such moves could attract, selectors have downplayed this eventuality – despite the benefits of the fund house’s new structure.

Ben Willis, head of research for Whitechurch Securities, said the business split may have made the investment structures more flexible and liquid.

He noted that stock position limits – capping how much of a stock could be held – were previously calculated across the whole of First State rather than on individual portfolios, meaning the changes created greater leeway for fund managers.

However, First State denied its decision was due to increased flexibility and said it was the “direct result of significant outflows” in the China fund.

But it said fund capacity would be watched, stating: “Capacity continues to be closely monitored across First State and Stewart Investor strategies.”

Ryan Hughes, fund manager for Apollo Multi Asset Management, said Stewart Investors portfolios would be hit by “a huge flood of assets” were they to reopen.

“On the Stewart side I don’t see them reopening,” he said. “The split was because they [Stewart] wanted to take control of their own destiny.

“They have got significant assets to manage, and they won’t potentially compromise that for existing investors by reopening funds.”

He noted that while the Greater China Growth fund had been a viable candidate for reopening after shrinking in size – from more than £600m in assets under management at the time of its soft closure to under £400m – other portfolios could be hindered by significant inflows.

The Asia All-Cap fund remains the only other FSS Asia fund currently soft-closed.

“[Greater China Growth] used to be a huge strategy but now it’s significantly smaller,” said Mr Hughes.

“On the Stewart side, if they did reopen funds I would be fairly certain they would get a huge flood of assets, which is something they would struggle to cope with. That’s not in their interests.”

Mr Willis agreed the Stewart Investors business was unlikely to be the home for any further fund changes. He added vehicles such as the Indian Subcontinent and Global Emerging Markets funds – which are part of the Stewart Investors business – may also still be “beholden to the total company stock limit rules”.