Current Price: £9.03
Offer Price: £9.62
Expiration Date: TBD
Genesis Emerging Markets intends to launch tender offer for 25% of its outstanding shares at 98% NAV price. Based on the most recent NAV of £9.82/share, tender consideration stands at £9.62/share - 6.5% upside to current prices. The offer is conditioned on shareholder approval. The meeting is planned for next month and the tender is likely to be launched shortly after that. Current discount to NAV is equivalent to the average over the last year, thus even if the tender is prorated, I would expect shares to trade at a similar discount to NAV post tender.
GSS focuses on emerging markets (mostly Asia and Russia) and has a fairly strong historical correlation to MSCI Emerging Markets index, so NAV exposure could be effectively hedged by shorting $EEM.
The tender offer will be launched in fulfillment of GSS obligation to buy back shares if the fund did not outperform the benchmark (MSCI Emerging Markets index) over 5 years ending on the 30th of June'21. The benchmark was missed by only 1%. At the moment, the company intends to change its investment manager to Fidelity (shareholders will also vote on this in August). The management fee is expected to decrease from 0.9% to 0.6%. Additionally, Fidelity agreed to a 9-month fee waiver. The upcomig transition to a much bigger name investment manager with lower fees might incentivize shareholders not to tender their shares.
Correlation with MSCI EM index:
- City of London Investment Management - 28%;
- Strathclyde Pension Fund - 22.2%;
- Lazard Asset Management - 12.1%;
- 1607 Capital Partners - 3.44%.