Strong markets buoy dividends and distributions

In this edition of the IIR LMI Monthly Update we take a look at the key news in September, as well as review FY25 dividends and distributions and dividend coverage of LICs. 

Strong markets led to positive results for dividends and distributions with 47.2% of LICs and LITs increasing the dividend/distribution for the FY25 period and 38.9% maintaining the dividend and distribution. 

Dividends and distributions declined for just 13.9% of LICs and LITs, which includes the declines from a number of fixed income LITs that resulted from a decline in interest rates.

Key news items include:

L1 Capital Wins the Battle for PMC Portfolio

This means it is likely that L1 Capital will be appointed as the manager for the PMC portfolio in due course implementing their global long/short strategy. As was flagged prior to the EGM, Ian Hunter and Margaret Towers have resigned from the Board effective immediately. 

The discount has been largely eradicated in recent months with the company undertaking an aggressive buy-back combined with the likely positivity surrounding the implementation of a new manager and strategy after a long period of underperformance relative to the broader market.  

Perpetual Credit Income Trust (ASX: PCI) announced that Greg Stock has been promoted from Deputy Portfolio Manager to Lead Portfolio Manager, effective 1 October 2025. 

The change in portfolio manager responsibilities comes as part of the planned retirement of Michael Korber in the next 12-months. Michael Korber has stepped into the Deputy Portfolio Manager role. 

During the month there was lot of noise around Metrics which has weighed on the market prices of the vehicles with the three Metrics LITs trading at a discount to NAV at the date of this report.

The Metrics Direct Income Fund (MDIF) has the ability to buy MXT units when they are trading at a discount. We would expect MDIF to provide some support to the MXT unit price if the fund has cash available.

IIR completed in-depth reviews of MXT and MOT in recent months. These reports are available from the IIR website. 

La Trobe Financial hit a bit of a road bump during the month with the La Trobe Private Credit Fund (ASX: LF1) announcing that the RE (La Trobe Financial Asset Management Limited) had received an interim stop order from ASIC on the 12-month Term Account with concerns about the Target Market Determination. 50% of LF1 is currently invested in the 12-month Term Account. The stop order was subsequently lifted after the concerns were addressed.

LF1 has taken a leaf out of PCX’s playbook, offering a regular off-market buy-back at NAV for up to 5% of the units on issue. The trust completed its first quarterly buy-back in September, with 2.78 million units being bought back and cancelled. The trust is lucky that this closed prior to the stop order announcement as the buy-back amount would have likely been higher. It will be interesting to see the level of participation at the next quarterly buy-back.  

Bailador Technology Investments Limited (ASX: BTI) has taken advantage of the strength in SiteMinder Limited’s (ASX: SDR) share price, realising $25 million of its investment during the month. The company realised the investment at an average price of $7.21 per share, representing a multiple of 29.4x on BTI’s investment. SiteMinder remains the largest position in the portfolio with BTI retaining 75% of its holding in the company with this being the second cash realisation since SDR listed.

PIA Shareholders to Vote on Proposal at AGM on 21 October

The proposal comes after the Board conducted a review to determine the best way to address the discount. On the webinar in early September regarding the proposal, the Chair, Frank Gooch, stated that the proposal is a result of the determination by the Board that the company needed to provide a unique offering and improve dividends to address the discount. The Board determined that this could only be achieved through the addition of another asset class.

The SOFR represents short-term borrowing costs in the US. As at 2 October 2025, the SOFR was 4.20% meaning the interest payable on drawn capital would be 5%p.a. The interest rate is variable to match the floating rate structure of the underlying securities in the global private credit strategy. The investment in the private credit strategy will be limited to 55% of the value of the global equity portfolio (in normal market conditions). 

There will likely be a number of aspects of the proposal that appeal to shareholders, including the increased frequency of dividends, an increase to the fully franked dividend, and the potential for lower volatility through asset diversification. 

However, shareholders should carefully consider the risks associated with the use of leverage for the investment in the global private credit strategy. Under the facility, a margin call would not be made until the loan-to-value ratio (LVR) is in excess of 65%. The amount drawn will target a leverage ratio of the global equity portfolio of 45% with the equity portfolio needing to fall by more than 31% to trigger a margin call according to the Independent Expert’s Report. 

While this sounds like a steep decline in equity markets, the global equity strategy has experienced maximum drawdowns (peak to trough) of greater than 31% on 3 occasions since the year 2000, most recently in 2022. With markets at all-time highs and an uncertain macroeconomic and geopolitical environment, this is a risk that should not be discounted. 

In the event there is a market shock which results in a drawdown that triggers a margin call, it is unlikely there would be sufficient liquidity in the private credit strategy investments and therefore the global equity portfolio would likely have to be sold to satisfy the margin call. 

This would be a detrimental outcome for investors with a permanent loss of capital from the forced sale of the equity portfolio and a portfolio that would potentially be largely exposed to just the private credit strategy. 

We note that this would be an extreme outcome and only occur if there was a significant shock to markets but it is a risk that we think investors should be fully aware of when making a decision regarding the proposal.

If the changes are approved, it would be likely that the new directors would be seeking to amend the strategy of the vehicle and/or potentially be seeking a merger with one of the LICs managed by the Wilson Asset Management Group. 

However, there would be hurdles to this with respect to the existing investment management agreement with Pengana. We note this is not the first attempt by Wilson Asset Management to gain control of the Board with Wilson Asset Management attempting to take control of the Board for the vehicle back in 2017.  

WMA Shareholders to Vote on Future of the Company

If the terms of the Premium Target were not met shareholders would have the right to vote on terminating the investment management agreement and liquidating the company. 

There are a number of considerations for investors regarding the resolution, however we believe the main consideration is the liquidity of the underlying assets. The underlying investments have limited liquidity and therefore it would likely take some time to realise the capital from these investments. The Manager stated in the AGM Notice that an orderly realisation of all existing assets would likely take more than five years.

We believe the removal of this risk will have a positive impact on the discount. However, if the Manager is retained and the company continues its operations, the Manager will have to deliver some meaningful returns to investors.