CITY OF LONDON INVESTMENT: Subdued FY 2024 Admits $320m FuM Outflow, 5-7% Client CAGRs And KPI Failure To Reinforce ‘Value Trap’ Credentials With Barely Covered Dividend Yielding 9%

29 January 2025
By Maynard Paton

FY 2024 results summary for City of London Investment (CLIG):

  • Another very subdued performance, showing revenue up 1%, profit down 1% and the annual dividend unchanged for the third consecutive FY after client withdrawals of $320m left average funds under management (FuM) just 3% higher.
  • “Constructive meetings” continue with 31.5% shareholder George Karpus, who now carries “high hopes and high expectations” for CLIG — despite the group failing to achieve its sole KPI after client-fee rates dropped 3bps while salaries climbed an average 6%.
  • Long-term client CAGRs of just 5-7% may reflect the inherent limitations of CLIG “exploiting the discount volatility” of UK investment trusts, and raises awkward comparisons to cash/bonds, the S&P 500 and sector activist Saba Capital.
  • While new clients remain elusive, plans to reduce expenses by $2.5m — albeit mostly through non-staff costs — alongside a stronger USD should help sustain this FY’s barely covered GBP dividend.
  • The subsequent H1 2025 witnessing further client withdrawals of $564m reinforces CLIG’s ‘value trap’ credentials, underlined by a share price that is back to 2007 levels and currently paying a 9% yield. I continue to hold.

Contents

News links, share data and disclosure

  • Share price: 360p
  • Share count: 50,679,095
  • Market capitalisation: £182m

Why I own CLIG

  • Fund manager that employs a “very risk-averse” strategy of buying investment trusts at attractive discounts through a team-based approach (point 1).
  • Accounts showcase high 38% margin, significant net cash and ability to distribute majority of earnings via dividends.
  • Yield of 9% offers meaningful income potential with upside linked to a market rotation into ‘value’, winning extremely elusive new clients and/or further activist intervention from major shareholder George Karpus.

Further reading: My CLIG Buy report | All my CLIG posts | CLIG website

Results summary

Functional and reporting currency change from GBP to USD

  • The comparable FY had already announced these FY figures would be the first to be presented using USD:

[FY 2023] “The functional currency of the Company and the presentational currency of the Group has changed to US dollars with effect from 1st July 2023. The Board believes that this change will provide investors and other stakeholders with greater transparency of the Group’s performance and reduced reported foreign exchange volatility.” 

  • The comparable FY included complete USD-denominated income statements, balance sheets and cash flow statements for FYs 2022 and 2023 (point 28).
  • For FYs prior to FY 2022, I have translated the original GBP performances into USD using the average GBP:USD rate that prevailed during each FY.
  • Although my translations will not be entirely accurate, they do emphasise how CLIG’s GBP progress has benefitted from a stronger USD. 
  • For example, GBP revenue between FYs 2013 and 2023 advanced 95%…
  • …while USD revenue increased 49%:
  • Furthermore, GBP adjusted operating profit between FYs 2013 and 2023 gained 166%… 
  • …while USD adjusted operating profit improved 102%:
  • GBP:USD averaged 1.57 during FY 2013 and 1.20 during FY 2023:
(Source: ShareScope)
  • This FY recapped why CLIG benefits from a stronger USD:

“Consistent with previous years, the Group’s revenue is almost entirely in US dollars, whilst the costs are approximately two-thirds in US dollars and the remaining one third are primarily in sterling. A stronger US dollar improves our profit through making the sterling-incurred costs relatively lower. Conversely, a weaker US dollar relatively increases the weight of those sterling costs as well as the impact of the sterling-denominated dividend, while the US dollar revenue is flat.” 

  • Despite CLIG adopting USD as the group’s functional and reporting currency, dividends continue to be declared in GBP…
  • …and the dividend-cover policy continues to be based upon GBP-denominated earnings:
  • This FY confirmed the dividend policy would remain at 1.2x over rolling five-year periods:

“Your Board formally reviewed the Group dividend policy and discussed it with management as part of our regular process. We continue to believe that the existing dividend policy will serve the Group well and formally voted to extend it. Our dividend policy of maintaining a 1.2 coverage ratio over a rolling five-year period has provided a useful structure and discipline since its adoption in 2014.”

  • How CLIG’s dividend-cover policy will fare if/when USD weakens against GBP remains to be seen.
  • A weaker USD will translate into lower GBP earnings, which for this FY were an adjusted £16.3m (33.5p per share) and barely covered this FY’s £16.1m (33p per share) dividend:
  • I asked during the 2024 AGM whether the dividend could be compromised if USD weakened significantly against GBP. The board’s response was not truly convincing:

[AGM 2024] “It’s one of those speculations and hypotheticals that we are hopeful that we’ll be ready for… If it comes to pass, we have to be pragmatic and we will do what’s best for shareholders.“

  • GBP averaged 1.26 during this FY, averaged 1.29 during the subsequent H1 2025 and stood recently at 1.24:
(Source: ShareScope)
  • A significantly weaker USD does not therefore seem an immediate threat to the GBP dividend.
  • CLIG’s own projections indicate a 1.2x dividend cover for FY 2025:
  • I am still unsure whether CLIG calculates its five-year dividend-cover sums correctly. This FY showed FY 2020 adjusted (GBP) earnings to be £7.6m:
  • But the FY 2021 accounts declared FY 2020 adjusted (GBP) earnings of £9.5m:
  • Using £9.5m earnings for FY 2020 gives a 1.23x dividend cover for FYs 2020-2024.

Revenue, profit and dividend

  • This FY confirmed FY FuM was indeed $10,241m, meaning FuM advanced 7% during H2 versus only 2% during H1.
  • CLIG therefore described the FY as a “game of two halves“:

“Game of two halves” is a British phrase that is commonly used to describe football (soccer) matches that have very different outcomes in each half… We saw an upward momentum swing in the second half of the financial year, making it a true game of two halves“

  • FuM averaged $9.6b during this FY versus $9.2b during the comparable FY:
  • Average FuM gaining 3% during this FY led to FY revenue improving 1% to $69.5m: 
  • CLIG does not distinguish between revenue from its original City of London Investment Management (CLIM) division and revenue from its £102m merger partner Karpus Investment Management (KIM).
  • But Companies House reveals CLIM reported revenue of $41.2m for this FY to support 59% of total FY revenue:
  • Excluding amortisation associated with the KIM merger:
    • FY operating profit was $26.1m or 1% less than the comparable FY ($26.5m), and;
    • H2 operating profit was $13.3m or 2% higher than the comparable H2 ($13.0m):
  • The aforementioned 1.2x dividend-cover policy led to a final 22p per share dividend:
  • A 33p per share FY payout was declared for the fourth consecutive year.

Funds under management: inflows and outflows

  • Both CLIM and KIM employ a long-standing value approach of buying investment trusts at attractive discounts.
  • The shares of investment trusts often trade below their net asset value (NAV), and CLIM/KIM essentially try to acquire £1 of market assets through a trust’s NAV for something like 85p… with the hope the discount will one day narrow as the shares return towards £1.
  • Although buying investment trusts at wide discounts is an inherently logical method of investing, a lot does depend on:
    • The investment ‘quality’ and future progress of the NAVs, and;
    • Whether the boards of the trusts actually want to narrow the discounts.
  • CLIM’s FuM can be divided into two main categories:
    • Emerging Markets (EM), and;
    • Other strategies, which cover:
      • “International“ (INTL) excluding the United States;
      • “Opportunistic Value” (OV);
      • “Frontier”;
      • “Listed Private Equity“, and; 
      • “Global” including the United States.
  • The (very thin) red bars on the chart below show new client money has been minimal since FY 2015:  
  • Indeed, this FY witnessed net withdrawals of $320m…
  • …which left aggregate net outflows since FY 2015 at $569m.
  • The preceding H1 appeared to blame the persistent lack of new money on the wider shift from active managers to index trackers and, increasingly, to money-market funds:

[H1 2024] “The ongoing trend of outflows from active managers into passive managers continued in 2023, but with an additional twist, as flows into money market vehicles reached an all-time high for net inflows during calendar year 2023…“

  • This FY claimed the withdrawals were due mostly to “geopolitical volatility“:

“The total net investment outflows of $320 million were in large part down to clients reducing their exposure to EM due to ongoing geopolitical volatility.“

  • CLIG clients “reducing their exposure to EM” is nothing new; a net $2.2b has been withdrawn from CLIM’s EM strategy between FY 2017 and this FY:
  • In fact, this FY witnessed outflows of EM money extending to 23 of the last 26 quarters:
  • CLIM’s Other strategies have since FY 2017 attracted net new client money of $1.6b, which has sadly not entirely counterbalanced the EM withdrawals.
  • Bear in mind clients can switch between CLIM’s approaches. During this FY for example, a net $108m was added to Other strategies — of which $100m was through a transfer from EM:

“Net outflows from the EM strategy included a $100 million transfer of a long-term client who reallocated within CLIM from the EM strategy to the International Equity (INTL) strategy, due to their underlying asset allocation decision” 

  • KIM’s clients withdrew a net $4m during this FY to take total net KIM withdrawals since the merger to $434m:
  • However, Q3 2024 did witness KIM’s first net inflow of quarterly client money since the merger, which this FY said was prompted by a “change in investor sentiment“: 

“Net inflows of c.$42 million at KIM during the second half of the financial year is a significant development showing a change in investor sentiment.“

  • This FY’s inflow, outflows and market gains left total FuM split 35% in EM (previously 38%), 38% in KIM (previously 37%) and 27% in Other strategies (previously 25%):
  • 35% is the lowest proportion of EM FuM in CLIG’s history. 
  • EM funds represented 90% of client money during FY 2017, since when CLIG has continued to diversify its FuM through developing the Other CLIM strategies and undertaking the KIM merger.
  • Despite the ongoing FuM withdrawals, many CLIG clients remain encouragingly loyal to the group. This FY reiterated how numerous clients had employed CLIM or KIM for more than ten years:
  • But emphasising the lack of new client money, the 173 CLIM clients served immediately before the KIM merger compares to 161 for FY 2014.
  • CLIG’s largest client may have withdrawn money during this FY. The comparable FY disclosed the fees earned from the largest client…

[FY 2023] “Included in revenues are fees of £5,402,756 (2022: £5,825,226) which arose from fee income from the Group’s largest client. No other single client contributed 10% or more to the Group’s revenue in either of the reporting periods.”

  • …but this FY did not include a similar disclosure. 

Funds under management: CLIM investment performance

  • This FY reported double-digit gains from CLIM’s three main strategies:

“CLIM’s EM strategy returned 12.2% net of fees vs. 13.6% for the S&P EM Frontier Super Composite BMI Index, as it lagged the benchmark by 140 bps due to unfavourable country allocation and weak NAV performance.
…
CLIM’s INTL strategy returned 13.0% net of fees vs. its benchmark MSCI ACWI ex- US Net TR Index which returned 11.6%, outperforming by 140 bps. Country allocation was positive, aided by out of benchmark exposure to the US market, particularly to the technology sector, as well as underweight exposure to European ex UK markets.
…
The OV strategy delivered strong returns in FY 2024, rising 13.1% net of fees vs. its benchmark Blended 50/50 MSCI ACWI/Barclays Global Agg Index, which returned 9.9%, outperforming by 320 bps. The portfolio benefited from investing in high-conviction, event-driven situations with positive discount alpha and catalysts.“

  • The double-digit gains were significantly greater than the 5-7% CAGRs that CLIM’s main strategies have delivered during the last ten years:
  • The EM and INTL performances reveal an unusual phenomenon: the associated benchmarks are fourth-quartile performers over ten years.
  • Benchmarks languishing in the fourth quartile may help explain why CLIM has struggled to attract new client money: lots of rival fund managers within the same sector can also claim ‘benchmark-beating’ returns.  
  • I am disappointed CLIM’s website no longer discloses the investment performances of its main EM, INTL and OV strategies.
  • I would imagine the old website charts below would now show an improved performance following this FY’s double-digit gains: 
  • Unlike the comparable FY…

[FY 2023] “[Today,] we find that the “magnificent-seven” stocks are valued at US$11 trillion or twice the level of the entire Japanese stock market and more than 20% of the entire US stock market. Whether or not this has taken this handful of companies into unsustainable “bubble” territory is for others to decide but in the six months to 30th June 2023, they accounted for more than 70% of the rise in the S&P 500 index, underlining the degree to which the recent strength in US equities has been driven by a narrow and powerful “Artificial Intelligence (AI)-bandwagon”. 

  • …and the preceding H1…

[H1 2024] “It is notable that emerging and international markets have substantially lagged the US market since the merger. Indeed, the S&P index has delivered a cumulative return of 49% in the 39-month period versus just 2% for EM and 23% for international markets.”

  • …this FY did not refer to the S&P 500.
  • The S&P 500 has of course been the index to own during the last decade. The iShares S&P 500 ETF (CSPX) for example has delivered impressive double-digit annualised (USD) gains:
(Source: ShareScope)
  • I remain convinced the aforementioned net $549m client money withdrawn from CLIM since FY 2017 is due mostly to CLIM’s (US) clientele contemplating the performance of the all-conquering S&P 500.
  • After all, the S&P 500 has delivered much greater gains at a much lower cost than any CLIM strategy.
  • A ShareScope news search among UK investment trusts for ‘City of London Investment Management’ reveals CLIM announcing 22 different holdings during the last three months:
(Source: ShareScope)
  • These 22 holdings may highlight the limitations of CLIM’s attempts to “generate positive discount alpha by exploiting the discount volatility” of investment trusts.
  • Holdings in Asia Dragon (DGN), Fidelity Japan (FJV) and JPMorgan Indian (JII) for example have traded mostly between 0.8x and 1.0x NAV:
(Source: ShareScope)
(Source: ShareScope)
(Source: ShareScope)
  • As such, ‘re-rating’ gains are typically restricted to 25% (i.e. from 0.8x NAV to 1.0x NAV) with further returns dependent on NAV growth plus dividends paid.  
  • CLIM is a long-term holder. Of those 22 trusts identified within my ShareScope news search, 15 have been owned for more than five years and six have been owned for at least ten:
(Source: ShareScope)
  • Discounts on investment trusts can fluctuate notably over five or more years, and I get the impression the full 25% ‘re-rating’ is not always captured.
  • Instead, CLIM seemingly adds to a position when the discount is wide, trims a position when the discount is narrow and leaves the position alone when the discount is middling. 
  • For example, CLIM’s holding in JPMorgan Indian has moved from 22% up to 29% and then down to 18% since 2021:
(Source: ShareScope)
  • The reason for keeping hold of trusts with narrow discounts was outlined by the board during the 2024 AGM; CLIM’s institutional clientele apparently wants to be “fully invested, whether discounts are 0% or discounts are 20%“.
  • Being “fully invested” when discounts are 0% is not ideal when the best returns should (theoretically) occur when discounts are 20%.
  • Another good reason for CLIM delivering only 5-7% CAGRs is CLIM’s universe of investment trusts is an asset class with inherent single-digit returns.
  • ShareScope shows the FTSE All Share Sector Closed End Index returning a five-year 2.4% CAGR and a 5.1% ten-year CAGR:
(Source: ShareScope)
  • From those 22 different CLIM-held trusts identified by ShareScope, the average five-year CAGR is approximately 2.4% while the average ten-year CAGR is approximately 6.8%.
  • ShareScope also shows:
    • Of the 365 UK investment trusts with five-year records, only 33 (9%) delivered 10%-plus CAGRs during those five years, and;
    • Of the 285 UK investment trusts with ten-year records, only 41 (14%) delivered 10%-plus CAGRs during those ten years.
  • This FY implied CLIM’s longer-term returns had been hampered by UK investment trusts widening to 2008-like discount levels: 

“The recent discount cycle has been challenging, with a correlated de-rating across asset classes and jurisdictions. Using the UK-listed market as an example, the discount headwinds of the last two and a half years are clear. To put this in context, the last time the sector traded so cheaply was in the weeks immediately post the collapse of Lehman Brothers in 2008. As of 30th June 2024, there had been a slight recovery to a 14.5% discount. The average discount over the last ten years is 6.1%.” 

  • This FY said the significant discounts had persuaded activist shareholders to enter the sector:  

“The valuation dislocation of the last two years and the prolonged relative underperformance of active managers has driven a predictable evolution. Specifically:
• Capital is being retired from the sector, after a fifteen-year net issuance cycle.
• The recent trend of take-privates,wind-downs and mergers & acquisitions is well anchored.
• The evolution of shareholder registers from passive to engaged, and activist shareholders, has increased the pace of both of the above.” 

  • Saba’s strategy of “pursuing changes that return discounted trusts to their full NAV”  has led to its US Closed-End Funds ETF reporting 11% NAV and share-price CAGRs since its 2017 inception:
  • This FY did refer to CLIM’s interaction with investment-trust boards: 

“Corporate governance has been a key focus and our teams at CLIM and KIM have been successful in engaging with CEF Boards to support discount control measures.”
…
“However, we were able to generate positive discount alpha by exploiting the discount volatility and engaging with Boards to improve shareholder value.“
…
“CLIM’s long history of corporate engagement continues to bear fruit for the INTL strategy as we proactively work with CEF Boards to create sustainable discount management policies in a constructive approach focused on creating a fair deal for shareholders and aligned with our long-term approach to investing.” 

  • But I speculate whether CLIM should become more assertive with its engagements and investments. 
  • After all, Saba has earned 11% annualised returns — versus CLIM’s 5-7% — by taking significant stakes in discounted trusts and going as fas as requisitioning general meetings to implement “value creation opportunities“.
  • The Q1 2025 webinar derided some activists for “coming in for a quick buck“:

“I think it’s important to distinguish, certainly from our perspective, those investors who have been in the space for a long period of time and care about shareholder value for all investors from potentially some activists, not all, but some that are coming in for a quick buck and then will exit.”

  • But I do wonder whether trust investors generally would prefer a Saba-style “quick buck” to a CLIM-style ‘slow buck’.
  • The first of Saba’s requisitioned meetings took place on 22 January, with Saba losing the vote to take charge of Herald Investment Trust by a wide margin. 
  • Despite the adverse vote, Saba’s Herald investment looks to have been a success. Early purchases were conducted at approximately £17 versus Herald’s recent £23:
  • Saba’s remaining six requisitioned meetings occur during the next week or two. I get the impression Saba will have made useful returns on all seven targeted UK trusts even if all the votes go the other way.
  • Perhaps CLIM should adopt some Saba-like tactics to extract value from under-performing trusts beyond its usual behind-closed-doors arguments for buybacks and tender offers.  
  • After all, CLIM does own sizeable chunks in many trusts. Of those 22 listed by ShareScope, CLIM held 15%-plus stakes in eight that could dominate any shareholder vote: 
(Source: ShareScope)
  • CLIM needs to build its profile within the UK investment-trust sector. Saba’s boss Boaz Weinstein admitted during a recent interview he did not know of another institution that bought UK trusts at attractive discounts:

[Boaz Weinstein 2025] “They just have to put the investors in front of their obvious greed. And so I think I will be an incredible important force for this investment trust market because I don’t see other investors doing it. If you know of some major players buying UK investment trusts other than Saba, I would be so interested to meet them.

I don’t think they exist.“

  • Board remarks during the 2024 AGM suggested CLIM’s “secret sauce” was an accurate NAV calculation rather than vigorous board engagement:

[AGM 2024] “The secret sauce ultimately is to know with a lot of precision, what the NAV is in real time. Everyone can see the market price, but we’re not sure what the NAV is.”

“If we can model that NAV very close to what it actually is… that gives the team the certainty to actually go in and back up the truck.”

  • Accurately determining a real-time NAV is one thing, but ensuring that real-time NAV is eventually reflected by the share price might be another.
  • The Q1 2025 webinar confirmed CLIM (and KIM) “buys discounts” and “does not buy managers” — that is, CLIM seemingly does not campaign to change the managers or strategies of trusts to improve NAV.
  • Many trusts trade at significant discounts because their NAV performances are relatively poor, their NAVs are questionable and/or their prospects of superior NAV advances are uncertain.
  • Arguing for buybacks to close a trust’s discount may be throwing good money after bad if the trust’s NAV is loaded with duff shares.
  • CLIM’s relative returns have not improved following this FY.
  • During H1 2025 (July to December 2024), CLIM’s strategies returned an estimated 1.7% while the S&P 500 (CSPX) returned 8.4% (see Q1 and Q2 2025 FuM updates).

Funds under management: KIM investment performance

  • KIM’s range of strategies all generated positive FY returns that outperformed their respective benchmarks:

“The KIM Conservative Balanced composite net investment returns for the rolling one year ended 30th June 2024 were 11.73% vs. 9.12% for the Morningstar US Fund Allocation – 30% to 50% Equity category in USD.

The KIM Growth Balanced composite net investment returns for the rolling one year ended 30th June 2024 were 13.76% vs. 10.93% for the Morningstar Average Balanced Fund category in USD.

The KIM Tax-Sensitive Fixed Income composite net investment returns for the rolling one year ended 30th June 2024 were 8.99% vs. 4.36% for the Morningstar Average Municipal Bond Fund category in USD.

The KIM Taxable Fixed Income composite net investment returns for the rolling one year ended 30th June 2024 were 9.30% vs. 4.75% for the Morningstar Average General Bond Fund category in USD.

The KIM Equity composite net investment returns for the rolling one year ended 30th June 2024 were 16.65% vs. 14.72% for the Morningstar 65% Average Domestic Fund/35% Average International Stock Fund category in USD.

The KIM Cash composite net investment returns for the rolling one year ended 30th June 2024 were 5.97% vs. 4.53% for the BOA ML benchmark in USD.” 

  • KIM’s website continues to summarise the division’s longer-term investment progress.
  • 9-11% annualised has not beaten the S&P 500, but has matched Saba’s ETF and outrun CLIM’s strategies.
  • KIM’s other strategies all involve fixed-income exposure, and are therefore not directly comparable to CLIM’s strategies or the S&P 500.
  • Mind you, KIM’s Conservative Balanced approach — with 10-50% in equities and the balance in bonds/cash — has delivered CLIM-like 7% annualised returns during the last ten years:
  • Board remarks at the 2024 AGM said KIM enjoyed a more flexible approach to asset management compared to CLIM. KIM can apparently hold “dry powder” ETFs when discounts are narrow and reinvest in more attractive opportunities when discounts become wider.
  • Earning 5% annualised returns from cash raises awkward questions about whether CLIM’s 5-7% CAGRs from equities deliver a sufficient ‘risk premium’. 
  • Following this FY, KIM’s portfolios returned an estimated 4.1% during CLIG’s H1 2025 (July to December 2024) (see Q1 and Q2 2025 FuM updates).

Funds under management: capacity, marketing and growth plans

  • This FY reiterated CLIG could accept further client money of $6b:

“The Group’s return to growth strategy continues to focus its marketing efforts on the consultants that dominate the new business flows in the sector. We calculate there to be c.$6 billion of spare capacity at CLIG in the [closed-end fund] universe ($4 billion between EM, INTL and OV, $1 billion in US Municipal Bonds, $1.2 billion across US Fixed Income and Equity strategies).” 

  • The comparable FY indicated extra capacity was $4.5b:
  • An extra $6b would increase this FY’s FuM of $10.2b by almost 60%. 
  • Previous FYs had limited marketing commentary to short snippets such as this:

[FY 2023] “All investment strategies are open and have capacity at a time when attractive discounts across the closed-end fund universe are the focus of marketing efforts to consultants, institutional and wealth management clients.” 

  • But this FY supplied slightly greater marketing commentary, including a reference to new promotional videos:

“Performance at CLIG has been strong and our teams have done well on an absolute basis and in their peer group rankings with all strategies in first or second quartiles over five and ten-year timeframes. This strong relative performance provides opportunity for our sales and marketing teams which have been actively engaging with clients and a growing number of prospects.
…
Our Relationship Managers and Executive Assistants at KIM and Marketing and Client Servicing teams at CLIM increased contact and information flow with clients and prospects, including the production of informative videos to highlight the strong capabilities of our investment teams and the attractive environment for increasing exposure to our strategies.” 

  • Both CLIM and KIM have in fact introduced videos to their respective websites: 

  • CLIG’s marketing efforts are vital, given the group’s long-term ‘benchmark-beating’ returns have effectively converted into net client withdrawals during the last nine years.
  • CLIG’s marketing efforts do not have an immediate impact. For example, the preceding H1 said marketing activity had “picked up significantly” at the start of H2…

[H1 2024] “Marketing and sales activity picked up significantly in January 2024 as clients and prospects review their investment allocations. The Group is focused on new mandates in a number of CLIG’s asset classes with very good long-term performance as [closed-end fund] discounts are at compelling levels. Our business development team is actively reaching out to clients and prospects to discuss the current opportunity-rich environment“.

  • …but H2 witnessed net client withdrawals of $26m.

[George Karpus 2023] “They are not client driven. They are not offering things that the clients are buying. What are the clients looking for? You have to be driven by what the market wants to buy, regardless of what you think they should buy. I have not seen that from the board and I have not seen that from a lot of people in the company.“

  • Board remarks during the 2024 AGM revealed Mr Karpus felt CLIG should focus more on sales and showcase its strategies to more possible clients. But the board also remarked:
    • Salespeople don’t start selling immediately, and hiring many salespeople would be an “expensive proposition“, and;
    • When potential clients are quiet, marketing efforts should be curtailed so not to waste money.
  • The AGM discussion gave the impression CLIG and Mr Karpus both agreed on the need for greater promotion, but differed on the scale required. 
  • Mind you, board remarks during the 2024 AGM included this comment:

[AGM 2024] “We try to sell things to [clients] that they need, not to force things down their throat. This is not a marketing-driven organisation. It’s an investment-driven organisation.”

  • The comment implies CLIG feels good investment performance alone should be enough to attract new clients.
  • AGM attendees were told CLIM had only one marketing/sales person, who worked with consultants (or “gatekeepers“), who in turn may introduce CLIM to their clients.
  • The consultant process involving CLIM was explained within the Q1 2025 webinar:

[Q1 2025] “We’re going out into the market with a very focused approach, which is to go through third parties, rather than having a massive marketing team across the United States, which is very expensive, and for different points in the cycle will have nothing to do because no one will pick up the phone.

If you look at the institutional marketplace in the United States, the consultant channel, they are the gatekeepers for those investors. They are constantly monitoring managers, providing updates, meeting with them, undertaking due diligence and ultimately, when a client needs a particular manager for a particular strategy, they will pull those managers into a finals presentation and then subject to that presentation, they’ll choose one, two, three or more managers depending on what their needs are.

That’s a very efficient way to market because you have a one-to-many relationship. You’re going through one consultant and you’re being opened up once you’re on their approved list to all of those underlying clients.“

  • The Q1 2025 webinar also explained how CLIM is often combined with another manager to fulfil a client’s mandate:

[Q1 2025] “In many cases, when we go into an investment mandate… we can be paired with a straight equity manager or a straight fixed-income manager who are buying directly the underlying securities.”

  • The same webinar suggested CLIM pitches its “niche approach” to buy the same investments as the mandate’s co-manager, but at a discount: 

[Q1 2025] “But we can buy the same securities effectively at a discount. That is really where we can be complementary for that plan sponsor or that consultant or that ultimate institutional or retail client. We get paired with another manager, usually a much larger manager and that gives us an opportunity to really provide that niche approach which you can’t just find everywhere. So that’s really where we focus our marketing activities.”

  • And similar to the 2024 AGM, the webinar claimed good past performance was enough to raise money through consultants:

[Q1 2025] “And so with the performance that we’ve seen, which is good, very long-term, first or second quartile performance, that’s what the consultants and third parties are looking for. And then ultimately, if you can keep that performance going, if you can keep your investment team together and motivated and focused on adding alpha, you’re going to raise money over time.” 

  • The effective absence of new CLIM client money during the last nine years suggests consultants and their clients consider factors beyond past performance. Other explanations for a lack of new mandates could include:
    • Buying investment trusts at a discount is a boutique/contrarian/unglamorous approach that not every institution wants (or even understands);
    • CLIM’s heritage area of expertise — emerging markets — has underperformed global markets during the last 15-plus years, and;
    • The group’s “team approach” does not lend itself to the inherent promotional advantages of employing a super-star investor.
  • This FY reckoned CLIM could enjoy marketing success through two fledgling strategies:  

“Aiding this outreach is the fact that CLIM’s Global Strategy will have a three-year track record in December 2024, and that CLIM’s Listed Private Equity strategy is drawing renewed client interest.” 

[Q1 2025] “We’re very excited on the listed private equity side….Listed private equity… is a strategy that has gained some assets recently and is becoming one of our core strategies that we’ll be reporting on going forward“

  • One marketing opportunity that has not yet taken off is cross-selling between CLIM and KIM.

[George Karpus 2023] “It is all one firm now. KIM clients should be able to invest in CLIM’s emerging-market fund, and vice versa with CLIM clients and the fixed-income services at KIM. That has not happened in three years.”

  • The Q1 2025 webinar talked of CLIM/KIM cross-selling being hindered by tax complications, but did confirm the plan was being worked on (albeit four years after the CLIG/KIM merger): 

[Q1 2025] “Mr Karpus told his clients at the merger there was going to be an opportunity for them ultimately to invest in these closed-end funds trading outside the United States. That is something that we continue to work on and that we would like to see happen, which is to put in place a few vehicles that would allow those clients on the KIM side or on the CLIM side to ultimately be able to buy the other firm’s product.“

  • I can foresee cross-selling CLIM strategies to KIM clients being difficult given many of KIM’s funds have outperformed CLIM’s 5-7% CAGRs.
  • Board remarks during the 2024 AGM seemed to dismiss a suggestion from Mr Karpus that KIM required extra sales people. AGM attendees were told KIM has “never had a real high-producing salesperson” and that KIM’s growth has instead always been through “good performance” and “third parties slowly bringing in business“.
  • This FY revealed KIM paid commissions of $1.8m to third-party investment advisers:

“Commissions payable of $1.8 million (2023: $1.8 million) relate to fees due to US registered investment advisers for the introduction of wealth management clients, remained at the similar levels as last year“.

  • If my estimated FY KIM revenue of $28.2m is correct, then KIM paid 6% of its gross fee income as commissions to advisors to secure new business.
  • Perhaps CLIM should re-adopt a third-party introducer that is incentivised through commission.
  • CLIG previously employed North Bridge Capital to help promote its funds, until marketing was brought in-house during FY 2009:

[FY 2009] “Towards the end of 2008 a marketing manager was appointed to implement our decision to bring our US marketing in-house, and ultimately therefore to avoid the commissions which we have historically paid to North Bridge Capital who have served us well since we started the US marketing activity. He will be responsible for developing direct relationships with the consultant industry which advises institutional investors.” 

  • Assisted by North Bridge, CLIM FuM between FYs 2004 and 2008 went from less than $1b to almost $5b…
  • …yet during the next 16 years (without North Bridge) CLIM FuM has climbed to only $6.3b.
  • KIM’s commission payments may explain its faster rate of FuM growth versus CLIM.
  • KIM FuM has gained 121% versus CLIM FUM up 44% since FY 2010:
  • Board remarks during both the 2022 AGM and 2024 AGM referred to the departure of several KIM “relationship managers” at the time of the CLIG/KIM merger. These departures may well explain why KIM has since not attracted net new client money.
  • Perhaps KIM’s fortunes are about to change. Board remarks at the 2024 AGM referred to KIM’s “green shoots” and “more meetings in the last quarter than… the previous twelve months“.
  • This FY reiterated new client money of $300m could be attracted during FY 2025:
  • An extra $300m is equivalent to only 3.1% of total FY FuM of $10.2b.
  • Expecting new client money of $250m a year at CLIM is still not completely outrageous; CLIM attracted net inflows of $338m during FY 2020 and $265m during FY 2015.
  • Expecting new client money at KIM remains optimistic, given the division has suffered net withdrawals in all but one quarter following the October 2020 merger.

Funds under management: fee rates

  • CLIG’s fee rate has been declining for some time.
  • The rate was 86 basis points during FY 2016…
  • …while this FY confirmed the rate had dropped three basis points to 69 basis points:
  • This FY suggested the lower fee rate was due to a lower proportion of higher-fee EM FuM:

“Changes in fee rates, product and investor mix are the principal factors that impact the weighted average rate. In general, the change is on account of a marginal reduction in the proportion of CLIM’s assets in the EM strategy from 61% in 2023 to 56% in 2024.“

  • Board remarks during the 2024 AGM confirmed:
    • EM tends to have “high” margins (and therefore “high” fees);
    • INTL tends to be “much more competitive” and has “lower” fees, and;
    • KIM has tiered fees; “As KIM assets go up, its margin goes down“.
  • Note that CLIG always quotes a net fee rate, which is based upon client payments less commissions and custody fees.
  • But comparing the estimated revenue derived from CLIM and KIM…
  • …to the average FuM reported by both divisions…
  • …gives some insight into CLIG’s gross fee rates, which are based upon client fees without any subtractions. Thus:
    • CLIM’s gross fee rate has declined from 82 basis points to 69 basis points between FYs 2019 to 2024, and;
    • KIM’s gross fee rate has remained approximately 78 basis points since FY 2021.
  • Bear in mind my 78-basis-point calculation for KIM contradicts the minimum 90 basis points disclosed in KIM’s product small-print:

[KIM website Q3 2024] “The annual management fee schedule is as follows: 1.50% on the first $1 million of market value, 1.30% on the next $1 million, 1.20% on the next $3 million, 1.10% on the next $5 million, 1.00% on the next $15 million, and 0.90% on the balance over $25 million.“

  • CLIG’s explanation of reduced fee rates being due primarily to lower EM FuM appears plausible.
  • Revenue would be very close to that reported by CLIM for FYs 2020 to 2024 if gross fees on CLIM’s EM FuM were consistently c90 basis points and gross fees on CLIM’s Other FuM were consistently c30 basis points.
  • CLIG has never disclosed fee rates for any of its strategies, and they may in fact fluctuate every FY as clients renegotiate their own particular terms. 
  • Mind you, I do find CLIM side-stepping the wider sector trend of lower fee rates very hard to believe…
  • …especially when delivering ten-year CAGRs within the 5-7% range.
  • After all, if typical CLIM clients have indeed earned net 5-7% CAGRs (i.e. 500-700 basis points) during the last ten years, then fees at, say, 70 basis points a year would have captured c14% of their gains.   
  • In contrast, holders of that S&P 500 ETF delivering, say, 15% annualised returns would have given away less than 1% of their gains through fees of seven basis points.

Engagement with George Karpus: board composition

  • The preceding H1 reported “a strategy of engagement” and “constructive meetings” with CLIG’s largest shareholder, George Karpus, which was repeated for this FY:

“Since our Annual General Meeting on 23rd October 2023, we have pursued a strategy of engagement with our largest shareholder and have had a series of constructive meetings. Discussions on strategy for CLIG’s businesses have been ongoing. We are making progress on a series of shared priorities, including an enhanced focus on the management of our cash balances as well as maintaining our commitment to expense management. “

  • This FY disappointingly added only the following development with Mr Karpus: 

“I am pleased to report that relations with our controlling shareholder have been progressing well. All involved are happy to be moving forward steadily and on an even keel.” 

  • Mr Karpus founded KIM, became a CLIG non-executive following the CLIG/KIM merger, left CLIG’s board during 2023, retains a 31.5% personal CLIG shareholding and speaks for a further 6.3%:

[George Karpus 2023] “I believe the future board should consist of individuals with different skill sets that believe in the great future of CLIG… They should have a combination of experience and skills, so they do not have to rely on outside consultants and advisors… 

This board should be replaced with a seasoned group of directors that understand the enormous potential of CLIG and that can guide the management in profitably growing the company.”

  • CLIG’s entire board has not been replaced, but has undergone notable changes since Mr Karpus issued his demand:
  • Former chairman Barry Aling had already announced his retirement before the 2023 AGM, and to his credit attended the 2024 AGM as an ordinary shareholder.
  • The current chairman has now served more than nine years on the board (which exceeds corporate-governance best practice) and this FY stated a succession plan was underway:

“Succession planning shall remain a key priority for the Nomination Committee with a particular focus on the process for identifying a new Chair… in due course and a new independent Non-Executive Director to replace Tazim Essani who will not be seeking re-election at the AGM in October 2024. As mentioned, we are progressing with the selection of a new NED to join the Board.“

  • A new chairman will then mean only one non-executive, Peter Roth, will have not stepped down since Mr Karpus demanded the entire board be replaced at the 2023 AGM.
  • I am not convinced about Mr Roth. When asked by the chairman during the 2024 AGM whether he would like to introduce himself, Mr Roth’s immediate reply was “not really“. Non-executives should not forget they are inherently paid by shareholders to represent them at board level.
  • At least CLIG’s latest non-executive appointment, Sarah Ing, was happy to introduce herself during the 2024 AGM. Mrs Ing’s CLIG bio cites she was a “top-rated equity research analyst covering the financial sector“… and during the 2024 AGM she disclosed her coverage had included CLIG and that she now hoped to improve CLIG’s investor profile.
  • Board remarks at the 2024 AGM implied Mr Karpus was no longer arguing for board changes. Attendees were told Mr Karpus:
    • Carried “high hopes and high expectations” for CLIG;
    • Supported all the AGM resolutions except for re-appointing the auditor (due to the delayed results publication following staff shortages);
    • Wanted CLIG to “keep its house in order” and maintain good cash flow, and;
    • Expressed his appreciation of the dividend. 

Engagement with George Karpus: corporate cash management

[George Karpus 2023] “[The board has] been slow to embrace changes to our reserves (cash management) that would improve returns and reduce risk.”

  • This FY revealed significant finance income:
  • This FY disclosed the bulk of CLIG’s cash was held in short-term treasuries and money-market funds:
  • Mr Karpus has clearly enjoyed success persuading CLIG to actively manage its own cash through KIM. 
  • But KIM actively managing a lot more cash for many other companies may not happen overnight.
  • Board comments during the 2024 AGM revealed:
    • Corporate cash is “not as sticky” as other client money;
    • Corporate cash had become $200m under KIM, but then one client withdrew $50m to fund an acquisition (see Q1 and Q2 2025 FuM updates);
    • Managing UK-company cash is not as easy as managing US-company cash, and;
    • The general cash-management opportunity is “understood” and will not be dismissed.

Engagement with George Karpus: expenses and employees

[George Karpus 2023] “Right now I think they must cut costs, and I said in my last board meeting about cutting costs. You have got to look at the areas that are not profitable and get rid of them. The dividend is probably reasonably protected in this current year, but after that it is questionable.”

  • This FY reiterated expenses would be reduced by $2.5m:

“Management has plans in place for cost reductions of c.$2.5 million over the next financial year.“

  • $2.5m is equivalent to nearly 6% of this FY’s total costs of $43m:
    • Employees: $30.9m;
    • Commissions and custody fees: $3.3m;
    • Depreciation and amortisation (excluding merger-related amortisation): $1.0m, and;
    • Other expenses of $8.2m.
  • Board remarks during the 2024 AGM suggested custody fees and IT costs were most likely to be cut. Attendees were told:
    • Negotiations were ongoing with some suppliers, for example Charles River (“a pretty expensive system“), and custodians;
    • “These guys are selling to the investment management business, which is under fee pressure. And so they have to take some of the pain with us.”, and;
    • The workforce would not be reduced significantly, as “people will always retire“.
  • Saving $2.5m out of the $11.5m spent on commissions, custodians and ‘other’ costs seems a very ambitious but very welcome target. 
  • That said, saving $2.5m could be negated completely if CLIG’s gross fee rate was reduced by (another) three basis points assuming FuM remains around $10b (i.e 0.003 * $10b = $3m).
  • The preceding H1 had indicated the cost savings would occur at both CLIM and KIM:
  • But this FY suggested the cost savings would occur entirely at CLIM:
  • This FY confirmed the closure of CLIM’s two fledgling REIT strategies due to a “lack of institutional interest in the asset class“, and I wonder if the REIT-related employees are no longer on the payroll to assist with the $2.5m saving.
  • Total FY employee expenditure advanced 4%, with aggregate salaries up 7% to $14.9m and profit share up 1% to $9.6m:
  • Employees had their salaries increased by an average 6% during this FY following 5%, 8% and 16% uplifts during FYs 2021, 2022 and 2023:
  • During the same four years, total CLIM/KIM FuM has advanced only 13% (to $10.2b), while the FY dividend has increased only 10% (to 33p per share). 
  • I therefore remain unclear as to whether CLIG’s salary structure — plus the profit-share pool, option scheme, 12.5% pension contributions and other perks — means the business is run primarily for employees rather than for shareholders.
  • True, FuM per employee has improved from $56m to $87m since FY 2014, showing CLIG’s workforce should enjoy economies of scale:
  • But the aforementioned declining FuM fee rate kept revenue per employee for this FY at $589k and within the $502k-$626k range witnessed between FYs 2013 and 2020:
  • Total cost per employee has increased from $222k to $262k since FY 2014. 
  • Revenue per employee flat-lining and cost per employee increasing has obvious implications for profit and margins (see Financials).
  • Following the CLIG/KIM merger, employee costs as a proportion of revenue have quickly rallied back towards 45%:
  • The aforementioned board remark during the 2024 AGM…

[AGM 2024] “These guys are selling to the investment management business, which is under fee pressure. And so they have to take some of the pain with us.”

  • …does beg the question why employees are not taking “some of the pain” of the industry’s fee pressure. 
  • CLIG will argue employees will take “some of the pain” through a lower profit-share pool, but I get the impression CLIG’s salaries continue to ratchet higher to compensate for any variable-pay shortfall.
  • Mr Karpus told me during 2023 year the directors “veer too much on the side of employees“:

[George Karpus 2023] “They must take better care of the clients, and focus more on the shareholders. I think they veer too much on the side of the employees, particularly in the last few years. And that has to change.”

KPI

  • Fee pressure, rising employee costs and outgoing client money contributed to CLIG failing to meet its sole KPI.
  • The KPI was introduced during FY 2019, requires the shares to deliver a minimum 7.5% annualised total return over five years and is “meant to stretch the management team“:

“The goal of this KPI is for the total return (share price plus dividends) to compound annually in a range of 7.5% to 12.5% over a five-year period. This KPI is meant to stretch the management team, without incentivising managers to take undue levels of risk.“

  • This FY blamed the KPI failure on external factors such as the shift to index trackers…

“CLIG targets a total return (share price plus dividends) to compound annually in a range of 7.5% to 12.5% over a five-year period. For the five years ended 30th June 2024, the total return was 34.7%, or 6.2% annualised (source, Bloomberg). The environment for UK listed asset managers has been negative for the past three years due to the broader shift of underlying investors to passively managed vehicles.”

  • …and soft markets:

“For the five years ended 30th June 2024, CLIG’s cumulative total return was 34.7%, or 6.2% annualised. CLIG’s management team is monitoring this development, as the broad market declines in the first half of FY 2024 precipitated this underperformance. Since listing in April 2006, the annualised return is 11.8%.” 

  • My KPI calculations for the five years ending FY 2024 are:
    • The starting share price on 01 July 2019 was 406p;
    • Dividends of 171.5p per share were then collected;
    • The price finished the five years down 36p to 370p on 30 June 2024, and;
    • The total return was 33% or approximately 6% per annum:
  • Board remarks during the 2024 AGM did not suggest the KPI failure would lead to any repercussions. Attendees were told:
    • There were generally no failings;
    • The team has been working harder than ever, and;
    • “We’ve had a rough patch and are working our way back”. 
  • Meeting the KPI seems touch and go for the five years ending FY 2025:
    • The starting share price on 01 July 2020 was 383p;
    • The price is presently 23p lower at 360p;
    • Dividends of 165.5p per share have so far been collected, and;
    • The total return to date is 37% or approximately 7.3% per annum with less than six months to go.
  • The 7.5%-plus KPI should actually be very achievable given CLIG’s dividend typically yields at least 6%:
(Source: ShareScope)
  • The fundamental issue for CLIG is earnings being squeezed by client fee pressure on one side and rising employee costs on the other…
  • …which, if unchecked, will at some point cause this FY’s barely covered dividend to be cut unless significant new client money can be attracted. 
  • Broad remarks during the 2024 AGM did not really address the risk of the dividend being squeezed. Attendees were instead told CLIG was:
    • Very focused on the future;
    • Doing its best to grow in a profitable manner;
    • Trying to diversify the business, and;
    • Paying an 8-9% dividend that is “money in your pocket“.
  • This FY reiterated CLIG does not employ individual KPIs:

“We are focused on fostering a team approach across the Group, discouraging the ‘cult of the individual’ and the risks associated with a star culture. The Group therefore takes the view that individual KPIs are not appropriate for a business that employs a team-based approach, and that individual KPIs could prove divisive and introduce unnecessary risk” 

  • The absence of individual KPIs perhaps explains why CLIG has struggled to attract significant new client money: individual employees can seemingly under-perform without consequence.
  • No wonder this FY confirmed employee turnover remained low: 

“95% of our 21 portfolio managers have worked for Group subsidiary companies for five or more years, and 50% of all employees have worked for Group subsidiary companies for over ten years” 

Financials

  • Despite the lower fee rates and rising employee salaries, CLIG remains a high-margin business — although the margin is not as high as it was at the time of the CLIG/KIM merger. 
  • A healthy 38% of revenue converted into operating profit before merger-related amortisation during this FY. In contrast, the margin was 49% during FY 2021 and 46% during FY 2022:
  • CLIG’s adjusted margin declining from above 40% during FYs 2021 and 2022 to below 40% during the comparable FY (39%) and this FY was caused by:
    • Employee expenses now absorbing 45% of revenue versus 38% or less, and;
    • Other costs now absorbing c12% of revenue versus 10% or less. 
  • Lower fee rates without commensurate FuM advances and/or without reduced overheads will inevitably squeeze CLIG’s margin further — and likely put the dividend at risk (see Valuation).
  • Cash flow appeared respectable during this FY, with adjusted earnings of $20.6m translating favourably into free cash of $20.9m:
  • Welcome cash movements during this FY included:
    • Very modest cash capex of $500k;
    • A reduction to working capital of $63k, and;
    • Collecting a net $5.4m following the sale of the investments held within the now-closed REIT funds.
  • CLIG’s cash flow does suffer two longer-term niggles:
  • Between FY 2020 and this FY, CLIG has:
    • Paid $34m tax but charged only $27m tax to the income statement, and;
    • Paid a net $12m to acquire shares for the employee benefit trust (EBT) but charged only $6m as share-based payments to the income statement. 
  • Both niggles reflect legitimate accounting, but during the same five years have arguably flattered aggregate adjusted earnings of $111m by $13m. 
  • The FY cash position gained $5.2m to $33.7m after operating cash flow of $28.6m plus the $5.4m REIT disposal funded tax of $8.1m, a net $1.1m EBT investment, dividends of $19.9m and other cash movements totalling $0.3m. 
  • FY cash of $33.7m is equivalent to a significant 49% of this FY’s revenue. 
  • CLIG’s cash position has not declined to below 30% of revenue since at least FY 2014.
  • CLIG has never operated with conventional debt nor been saddled with final-salary pension obligations.
  • This FY showed goodwill relating to the KIM merger remaining at $90m:
  • This FY repeated the rather awkward text about the way the KIM goodwill is tested for impairments:

“The Group has carried out an annual review of the carrying value of the CGU to which the goodwill is allocated to see if it has suffered any impairment. Management also considered whether there were any indicators of impairment of other intangible assets. The Group had assessed the recoverable amount of the CGU by its value in use and found that it was less than the carrying value owing to a higher discount rate and reduced growth forecasts due to changes in market conditions. The Group thus reassessed the recoverable amount by its fair value (Fair Value) less cost of disposal (FVLCOD), which exceeds the carrying value.” 

  • The text reads as if CLIG changed the goodwill-testing method because the original method would have led to an impairment.
  • Impairing the KIM goodwill would essentially admit the value applied to KIM at the time of the merger was too high.
  • Re-jigging KIM’s goodwill testing is perhaps not surprising when this FY projected KIM’s costs growing at 3% a year versus KIM’s revenue growing at only 1.3% a year:

“The key assumptions underlying the budgets are based on the most recent trading activity with built in organic growth, revenue and cost margins. The annual growth rate used for extrapolating revenue forecasts was 1.3% and for direct costs was 3.0% based on the Group’s expectation of future growth of the business.“

  • KIM’s 1.3% revenue-growth projection was reduced from the 1.5% stated within the previous FY.
  • Informal management comments after the 2024 AGM stated CLIG has a choice of impairment testing methods for KIM’s goodwill, and the method chosen and the testing results were all approved by the auditor.
  • Return on equity and similar ratios don’t seem relevant to CLIG. Earnings growth is driven inherently by attracting greater FuM, which in turn is not directly correlated to profit being retained as cash or reinvested into tangible items such as computers and office furniture.
  • Indeed, CLIG’s balance sheet still implies the business is an inherently capital-light operation.
  • For this FY, conventional property and equipment was carried at just $1m while net working capital stood at a negative $2m after fees owed by customers were offset by bonuses owed to staff:
  • The minimal ‘operating assets’ indicate CLIG should not need to reinvest significant amounts within the business were FuM to significantly increase.
  • Since FY 2014, CLIG has in fact declared aggregate adjusted earnings of 479p per share, of which 411p were paid as ordinary or special dividends and the remaining 68p per share retained within the business:

Q1 and Q2 2025 FuM updates

  • This FY supplied optimistic commentary about future FuM:

“Positive momentum appears to be building at a time when a number of factors are improving… The level of inquiry and requests for proposals for International and EM mandates have improved markedly over the past six months”. 
…
“As commented in recent Annual Reports, Emerging Markets (EM) strategies have been out of favour as an asset class for an extended period. However, there appears to be a momentum swing underway with a renewed interest in EM from institutional investors in the US marketplace.“
…
“We remain optimistic about the prospects for EM equities, which offer attractive valuations and exposure to growth sectors such as artificial intelligence. We believe that our active and opportunistic approach will benefit from a shift in sentiment towards this under-appreciated asset class.”

  • Following this FY, October’s Q1 2025 update revealed FuM surpassing $10.7b for the first time since Q2 2022:
  • Q1 2025 was bolstered primarily by useful investment gains of $687m.
  • However, Q1 2025 suffered net client withdrawals of $195m to mark the seventh quarterly outflow during the last eight quarters:
  • Client “rebalancing” was blamed for the Q1 withdrawals: 

[Q1 2025] “Net investment outflows were $195 million for the Group over the period led by rebalancing of International Equity mandates after strong market performance. The bulk of outflows at Karpus were from a cash-management-account client using the funds to make an acquisition.“

  • Board remarks during the 2024 AGM confirmed the acquisition-funding withdrawal from KIM was $50m.
  • This month’s Q2 2025 update revealed H1 2025 investment gains of $269m and H1 2025 net client withdrawals of $564m:
  • Q2 2025 therefore suffered:
    • Investment losses of $418m, and;
    • Net client withdrawals of $369m to mark the eighth quarterly outflow during the last nine quarters: 
  • Q2 2025 FuM of $9.9b is the lowest since Q2 2024 ($9.6bn):
  • The Q2 update reiterated the “rebalancing” and the major KIM withdrawal: 

[Q2 2025] “Strong market returns over the six months led to client rebalancing, asset allocation changes, and included a large client drawing down cash management capital for acquisitions“

  • Many CLIG clients do like to ‘rebalance’ during a CLIG H1. Such activity has for example been cited during H1 2023, H1 2022 and H1 2021.
  • Clients always seem to ‘rebalance’ out of CLIM’s funds yet never seem to ‘rebalance’ back in.
  • Following the Q1 2025 update, total net withdrawals from CLIM since FY 2016 have swelled to $975m…
  • …while total net withdrawals from KIM since the merger have swelled to $572m:
  • The S&P 500 continued to outperform CLIM’s strategies during H1 2025. That S&P 500 ETF gained 8.3%, while CLIM’s $109m investment gain equated to an estimated 1.7% return:
  • KIM’s $160m investment gain during H1 2025 led to an estimated 4.1% return:
  • The Q2 2025 update continued CLIG’s disappointing decision to disclose much less information within its quarterly updates.

[Q2 2024] “The Group’s income currently accrues at a weighted average rate of approximately 70 basis points, net of third party commissions. 

“Fixed” costs are c. US$2.3 million per month, and accordingly the current run-rate for operating profit before profit-share is approximately US$3.2 million per month based upon current FuM.

The Group estimates the unaudited profit before amortisation and taxation for the six months ended 31 December 2023 to be approximately US$13.9 million (six months ended 31 December 2022: US$13.8 million, restated in USD based on average exchange rate).

Inclusive of our regulatory and statutory capital requirements, cash and cash equivalents stood at US$28.8 million at the end of the calendar year (US$28.6 million as at 30 June 2023, restated in USD based on closing exchange rate), in addition to the seed investments of US$2.4 million. Our cash reserves will allow us to continue managing the business conservatively through volatile markets while following our dividend policy for our shareholders.”

  • Q2 2025 provided no such information.
  • CLIG’s decision to divulge less information feels ominous, although arguably the decision leaves CLIG now disclosing the same level of information as other small fund managers.
  • I note CLIG dropped its handy post-tax profit matrix after H1 2023…
  • I believe the retirement of CLIG founder Barry Olliff during July 2022 has since allowed the present board to withdraw some of CLIG’s more informative disclosures.

[Maynard Paton 2014] “I’m very encouraged by Mr Olliff’s commendable transparency towards shareholders.

In particular, Mr Olliff has confirmed he intends to remain in charge until 2019 (he’s in his late 60s now) and has in the past forewarned of personal share disposals at specific future prices (from 300p up to 600p!).

I can’t recall another executive ever giving similar advance notice of his future tenure and certainly nothing as clear on personal share dealings. It’s all very refreshing in light of the boardroom shenanigans we’ve all read at many other small-caps.“

Valuation

  • This FY supplied a revised dividend-cover template showing a new earnings projection for FY 2025.
  • The preceding H1 2024 had anticipated retained earnings of £1.8m or approximately 3.6p per share for FY 2025:
  • But this FY predicted retained earnings of £3.4m or approximately 6.7p per share:
  • When added to the 33p per share dividend, retained earnings of 6.7p per share indicates FY 2025 adjusted earnings might be 39.7p per share or $0.49 per share at GBP:USD 1.24.
  • Bear in mind this FY’s dividend-cover template — and the associated FY 2025 earnings projection — assume FY 2025 will witness net new client money of $300m… 
  • …although this month’s Q2 2025 subsequently revealed total FuM has instead declined by $295m during H1 2025.
  • Taking this FY’s adjusted earnings of 33.5p per share puts the 360p shares on a P/E of approximately 10-11x —  a multiple often witnessed during CLIG’s quoted history: 
(Source: ShareScope)
  • Note this FY’s earnings do not account for the proposed $2.5m annual savings, but may require tweaking for the aforementioned niggles about tax payments and EBT expenditure.
  • The 9% trailing yield remains very high, but is not entirely unusual for CLIG:
(Source: ShareScope)
  • The recent 360p share price was first achieved during late 2007…
(Source: ShareScope)
  • …and the lack of capital appreciation over 17 years does suggest CLIG’s business strategy, investment style, industry position and/or employee talent are not quite what they should be.
  • I am hopeful:
    • Glamour stocks powering the S&P 500 will not remain glamorous forever;
    • Clients at some point rotate into CLIM’s strategies to capture 2008-like discounts;
    • CLIM becomes more assertive with its investment process and/or board engagements to generate CAGRs beyond the standard mid-single-digit returns from investment trusts;
    • KIM capitalises on its aforementioned “green shoots” for its established products and can expand its useful cash-management service;
    • Cross-selling between CLIM and KIM gets off the ground, and;
    • Costs can be reduced to help earnings improve and fully secure the 9% yield. 
  • The saving grace with CLIG is 31.5% shareholder Mr Karpus, who thankfully has undertaken a series of “constructive meetings” with the board to improve progress and has seemingly succeeded on a number of issues.
  • That said, this FY and the subsequent H1 2025 reinforced CLIG’s inherent ‘value trap’ credentials, with:
    • Major new client mandates still very elusive;
    • Client withdrawals still very persistent;
    • Client returns at CLIM still quite modest;
    • Client fees still reducing but employee costs still advancing, and;
    • Earnings and dividend cover still being squeezed.
  • I suspect the $2.5m cost savings alongside a favourable GBP:USD exchange rate will buy CLIG time during FY 2025…
  • … but FY 2026 might lead to another year of minimal dividend cover if CLIG’s ‘value trap’ credentials persist. 
  • I can only trust CLIG can meet the aforementioned “high hopes and high expectations” expressed by Mr Karpus…
  • …and another scathing AGM statement is not required to bring further change to revitalise the business!

Maynard Paton

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