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Blog Posted in avatar   Monty Spivak's Blog

Aston Hill Helping Themselves More Than Shareholders

By Monty Spivak
Posted Feb 24, 2013 in Business
How does a fund manager reduce costs, but still maintain their high fees on poorly-performing funds? Merge them! The management effort, exchange listing fees, and other costs are reduced, and the annual management fee charged to the fund is maintained.
On January 22, 2013, Aston Hill Asset Management Inc. announced that it is proposing to merge three closed-end funds into one mutual fund:
1. Aston Hill Global Agribusiness Fund ("Global Agribusiness", TSX: AGB.UN)
2. Aston Hill Senior Gold Producers Income Corp. ("Senior Gold Producers", TSX: GPC)
3. Aston Hill Global Uranium Fund Inc. ("Global Uranium", TSX: GUR)
According to the Notice of Special Meeting, the successor fund will be "Aston Hill Global Resource and Infrastructure Fund" and its investment objective would be to provide exposure to resource companies including related infrastructure companies by investing primarily in equity and fixed income securities (including high yield debt securities) of such companies located anywhere in the world.
Let's be clear, whether measured by market price or Net Asset Value (NAV), all three funds are not exactly achievers; in fact, the opposite is true (I hate to use the word "losers"). Therefore, existing shareholders are almost guaranteed to support this proposal, as there is not much downside left in these securities.
All of the usual investment information sources dutifully published the benefits which were touted by management; specifically: an attractive new investment mandate; daily liquidity at net asset value per security; no increase in management fees despite a broader investment mandate; and, the ability to switch to other Aston Hill Mutual Funds.
Unfortunately, nobody seemed to mention that:
1. The managers of these funds have failed to provide positive total returns to shareholders (or unit-holders), but still took large fees.
2. That Aston Hill is maintaining its current management fees structure - which are typically 1.5%. As a data point, ETF management fees are usually a fraction of this - for example, Vanguard's ETF fees run from 0.11% to 0.49%.
3. That Aston Hill will enjoy a substantially reduced cost - it is a lot cheaper to list and manage one fund instead of three.
If Aston Hill really wants to provide value to shareholders, they should substantially cut their fees instead of continuing to "skim the cream". Too bad they did not include this as part of the solution in the proposal.
For disclosure purposes, I am long Aston Hill Senior Gold Producers Income Corp. ("Senior Gold Producers", TSX: GPC).

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