The Lazard man who does his shopping in the discount aisle
L LAZARD Asset Management prides itself on its global approach to investment. It h has offices not jus just in London, Frankfurt and N New York, but i in fi financial il centres such as Seoul and Sydney. In total it runs portfolios worth £137billion.
This global perspective, initiated by the five Lazard brothers who in the mid-19th Century sailed from France to America to seek their fortune, is today encapsulated in the Lazard World Trust Fund.
Launched 25 years ago, the fund not only carries on Lazard’s proud tradition of investing globally, but is managed from both its London and New York offices by a fivestrong team. Its lead manager is New York-based Kun Deng, who has been at the helm for 19 years.
Though a fairly small fund at £109million, it is a flag waver for Lazard’s commitment to buying ‘discounted assets’ – an investment process underpinning portfolios valued at £3.4billion.
Discounted assets are companies where the value of the underlying assets are not reflected in the share price – but where there is an expectation that this mismatch will in time be corrected, resulting in profit for patient investors.
‘What we are always searching for are companies where there is a clear strategy – a catalyst – in place to eliminate the discount,’ says Deng. The discount may be on an investment trust or other closed-end investment company. Or it may be where shares in a holding company do not fully reflect the value of the subsidiary businesses.
More than 70 per cent of the portfolio’s assets – spread across 30 holdings – are in closed-end companies or investment trusts.
Lazard’s approach is more handholding than looking to make a fast profit. Deng says: ‘Whenever we invest in a closed-end fund, we take the view that it is worth more alive than dead. So we try to facilitate change for the better, whether it’s encouraging more effective investment management or improved corporate governance – for example, share buy-backs designed to close the discount and payment of dividends.’
Some of the companies the fund has bought still sit at big discounts – Harbourvest Global Private Equity is at a 31 per cent discount while Fondul Proprietatea is at a 36 per cent discount. But Deng is prepared to play a waiting game.
‘Both have catalysts in place that should see a narrowing of their discounts,’ he says. ‘The Fondul fund is invested in Romanian equities which we like. It is also managed by an investment house, Templeton Franklin, which we trust to deliver.’
Other global trusts – Lindsell Train, Scottish Mortgage and Witan among them – have performed better over the past five years. But wealth manager Canaccord Genuity likes the ‘disciplined, discount-orientated approach to portfolio construction’ that Deng and his team employ.
It also describes the team as ‘highly experienced’, which ‘facilitates active and constructive corporate governance engagement’. It welcomes the fact the trust is paying an annual dividend of about 4 per cent.
And it believes the average discount on the underlying portfolio – 28 per cent – plus the discount on the fund itself of 13 per cent gives investors a ‘significant margin of safety’.
Deng, who likes to talk in dollars, says: ‘Every dollar invested is worth $1.60 of assets.’
He adds: ‘The fund is good in a crisis and at the moment, the world never seems short of them.’