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To hold a 25% stake in Lindsell Train Limited
This is the only unquoted investment the company aims to hold.
A fixed proportion of the Investment Manager's net profits are paid to the Company as dividends, subject only to the ongoing requirements of the Investment Manager's business.
To invest mostly in quoted equities, bonds, cash and other financial instruments
The investment powers of the Company are comprehensive, allowing the use of the widest range of financial assets, including equities, unquoted equities, bonds, cash and other financial instruments. The Company is empowered to invest globally, with no limitation on the markets or sectors in which investment may be made, though there may be a bias toward Sterling assets, consistent with the Sterling-denominated investment objective. The flexibility implicit in these powers should assist in the achievement of the absolute returns the investment objective requires.
To invest in Lindsell Train Limited products (up to 25% of NAV at cost)
The Company should benefit directly and indirectly from investing in Lindsell Train Fund Products, subject to certain constraints. These constraints are that any investment in a Lindsell Train Fund Product will require the approval of the Board and its acknowledgement that the investment objectives of any fund are appropriate in the context of seeking to achieve the investment objective of the Company. There will be a limit on the proportion of the Company's portfolio that may be committed to such fund products equivalent to 25% of NAV at cost. Periodic management and performance fees otherwise receivable by the Investment Manager from the relevant underlying fund in respect of such investment in a Lindsell Train Fund Product will be waived. In this way, the Company can, if appropriate, access the specialised investment management skills of the Investment Manager. In addition, by providing investment capital to Lindsell Train Fund Products, the Company accelerates the commercial development of the Investment Manager, in which the Company will directly benefit.
"Normal" allocation to equities should be 80%
The Investment Manager expects a normal allocation to equities in the Company will be 80% and that it would be very unusual if it were to fall below 50% However, these percentages are selected empirically, from the previous experience of the Founder Shareholders, and in practice the allocation to equities will be determined by the Investment Manager's ability to identify sufficient opportunities with the potential to beat the benchmark.
Concentrated Equity Portfolio: 8-25 Holdings
The Investment Manager intends to run a highly concentrated equity portfolio, with perhaps as few as eight holdings. The reason for this proposed concentration, relative to many investment trusts, is that the Investment Manager believes that risk is reduced in this way. The Investment Manager is risk averse. It sees the greatest risk as the loss of the real value of capital over the long term and the investment policy followed in managing the Company's investment portfolio will seek to avoid this outcome. In this sense of seeking to avoid absolute loss, the policy of portfolio concentration is intended to decrease risk, if it widens, as it should, the required margin of safety the Investment Manager seeks in any potential investment. Otherwise, risk, as often defined in the investment industry, as being that of short-term volatility of return relative to either an index or a peer group of similar funds, is not a concern for the Investment Manager and it will not seek to limit it.
Gearing: Up to 50% of Net Asset
The Investment Manager uses gearing opporunistically, not structurally, and will not gear the Company above 50% of its net assets, as an absolute maximum. The Directors do not anticipate that there will be permanent debt. Instead, borrowings will be taken out in relation to a specific asset or circumstance. For instance, the Company may borrow against a security when the income return from the security accounts for a high proportion of the cost of the borrowing and when the Investment Manager believes the asset is undervalued or when an arbitrage opportunity offers a likely risk-adjusted return well in excess of the annualised cost of borrowing, for instance in a takeover or a corporate capital reconstruction.
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