24 November 2022
By Maynard Paton
I have recorded another episode of The Private Investor’s Podcast with my good friend Mark Atkinson. We discussed City of London Investment (CLIG) and my recent share purchase, my AGM attendance and the company’s 9% dividend yield:
We cover:
- My recent CLIG purchase and history of ownership.
- A lack of capital gains, but superb dividends.
- Where CLIG stands in my portfolio now.
- How does CLIG invest for its clients?
- My attendance at the AGM and previously receiving a letter from CLIG’s founder.
- Major shareholder George Karpus and his future plans.
- The performance of Karpus Investment Management following the merger.
- CLIG’s regular client income, but fees are being squeezed.
- Employee remuneration versus client returns.
- The share-price KPI and potential double-digit returns.
- CLIG’s investment team approach and employee retention.
- History of funds under management and recent client-money inflows.
- The S&P 500, institutional ‘allocators’ and portfolio ‘buckets’.
- The attractions of emerging markets and potential for outperformance.
- Private investors holding CLIG and liking cash-rich income stocks.
- The 9% yield, valuation comparison with Liontrust and closing thoughts.
Extra links:
- My 2022 AGM attendance notes.
- My CLIG blog post George Karpus commented upon.
- My 2016 AGM attendance notes.
- My letter from CLIG founder Barry Olliff
Happy listening!
Maynard Paton
PS: The AGM took place on 31st October 2022 and the podcast recording took place on 21st November 2022.
Disclosure: Maynard owns shares in City of London Investment.
City of London Investment (CLIG)
AGM attendance notes
I attended CLIG’s AGM on 31st October 2022 at the group’s head office in central London. The full board (chief exec plus six non-execs) alongside the four execs who sit on the operations board were all in attendance.
At the other side of the table were myself, another private shareholder, two representatives from the house broker plus another attendee who I think was an analyst. Format of this AGM was straight into Q&A then a short summary of the resolutions and instructions for voting. A letter of representation helped gain access and I did receive a voting card.
Only I asked questions and the Q&A lasted for approximately 30 minutes. Credit to the board here; the directors answered all the questions at some length and the chairman always invited the relevant executives to add to his initial answers.
Below are my best notes of what was said. Listen to the podcast above for further thoughts!
Maynard
Verdict of the larger group’s performance following the Karpus (KIM) merger?
* Generally performed well.
* Challenging time due to market swings and pandemic.
* “Reasonably pleased” with performance.
* Diversification through KIM benefited shareholders “significantly“. KIM’s revenue relatively stable, hence why transaction made sense.
* Now see value in closed end funds.
* Already signs of clients “coming back“.
* Institutions “take money off the table” when markets are strong (2021) => “re-balancing“.
* CLIM clients operate “buckets“, when a bucket gets a bigger, they take money elsewhere (e.g. 2021).
* Wider discounts now. Clients looking to put money back into the market, particularly EMs, but CEFs generally.
* ”Asset allocators“: Institutional clients construct asset allocation (buckets) for their investments e.g. based on asset class, geography, etc, then stick to that bucket.
* Hoping next year allocators change their asset allocations.
* KIM — individual investors –> more inclined to worry when markets are weak and buy when markets are strong.
* KIM serves many retired people, natural withdrawal of cash for living ($100m a year aggregate).
Value-style of investing attracting clients?
* Not really. Won’t have potential clients thinking value is going to do well because growth has done well over the last ten years.
* Analysis of our portfolios would show equal growth and value investments.
International strategy closure?
* Closed at $1b to ensure it could continue to outperform. Did outperform and re-opened.
* Can increase by another $1-2b before another possible closure.
Consistent new outflows of client money at KIM?
* Relation management team has not been consistent.
* Now improving sales approach.
* Working with other RIAs (registered investment advisers).
* Working with extra asset management platforms.
* Clients “took step back” after merger.
* KIM put “on watch” because of merger (“very normal“), now “off watch“.
* “Not seen anything inherently wrong with the business“.
* Push next year for additional inflows.
* Still raising capital, but overwhelmed by difficult markets.
* Working on client retention.
* Difficult generally to develop business in pandemic.
* Recruitment hard for group’s (out-of-the-way) US offices — taking 3-6 months to fill vacancies.
Fund underperformance vs S&P 500?
* Some clients asked in trustee meetings: “What are we doing in emerging markets when the S&P 500 has outperformed“.
* Reason: diversification.
* “Things can not go up for ever, they will eventually stop”
* Prudent clients want exposure to other asset classes.
* Core of clients still want diversification.
* But others will drop off.
* US dollar — 20-30 % overvalued.
* EMs –> trading at 10x, “quite cheap now relative to own history“.
* CEF discounts “widest for 18-20 years“.
* Any turnaround should give “decent tailwind“.
* Clients do swap from EMs to other strategies to stay with CLIM.
* Clients “completely understand” why we may underperform against the S&P.
* Clients don’t go “all in” on particular asset types.
Future plans of George Karpus?
* Intention: George K and chairman to stand down this time next year. Board will soon consider succession issue.
(George K did say in the meeting: ”You made some good points in your thesis. You were spot on about a couple of things.“)
Fee rates declining?
* Whole industry is facing lower fees.
* Change in mix, lower fee generally charged by International than EM.
* (MP note: would not disclose product fee rates, seems a sensitive issue)
KIM commissions at 7% of KIM revenue?
* Have to fee share with RIAs to manage money for them.
* Commission rate within industry norms (but did not confirm whether 7% was accurate).
* CLIM was paying 20% to the introducer for its first 10-12 years.
* Don’t then pay anyone to meet/handle clients.
Will profit share reach 30%?
* Have an option to go to 30%
* In down markets with less profit, “shooting ourselves in the foot” to take a higher percentage.
* A cultural thing — if shareholders do well, employees should doing well.
* Key is the culture of the firm, team spirit, team approach etc.
Thank you for a very interesting podcast
Glad you liked it Debra! Maynard