On 29 November 2024, the shareholders of China Merchants China Direct Investments (CMCDI, 133 HK) will vote on the renewal of its investment management agreement with the investment manager.
We, Argyle Street Management, will vote AGAINST that.
Only independent shareholders can vote. The incumbent manager is co-owned by the affiliates of China Merchants Group and Victor Chu. They are not allowed to vote.
If there are more votes against than votes in favor, then the incumbent manager will be removed. CMCDI will then have no more external manager.
If CMCDI’s manager is removed, what will happen to CMCDI? Will CMCDI decay into a management-less anarchy?
We are not worried.
External manager is optional
CMCDI is an “investment company” governed by Chapter 21 of the Listing Rules, which does not say that an external manager is compulsory.
In fact, several Chapter 21 companies do not currently have external managers (such as this one).
CMCDI’s articles of association (article 152 and 153) says that “the directors [of CMCDI] may from time to time appoint a manager…”.
In other words, an external manager is not a must.
CMCDI’s external manager has little power
The manager actually has less power than you might imagine.
An Investment Committee, which consists of directors of CMCDI, in fact, has the power to “supervise the day-to-day management functions of the [external investment manager]”.
Also, any single transaction over US$ 20 million requires the approval of CMCDI’s Investment Committee under the board.
For a closed-end fund with NAV of ~US$ 600m, the approval threshold of US$ 20 million is pretty low.
In other words, it is the board, not the external manager, that has the real power. The board can continue to exercise its power and manage CMCDI after the manager is removed.
CMCDI can manage itself
CMCDI is a listed company that has a board of directors. Article 152 also says that CMCDI can pay “salaries or commission” (i.e. hire employees).
Like any other “regular” listed company, these directors and employees can manage the affairs of CMCDI.
To maintain continuity and minimize disruption, CMCDI can hire the same team from the external manager (minus Victor Chu and Elizabeth Kan).
In other words, CMCDI can “internalize” its management, without paying over US$ 10 million of management fees per year (45% of which goes to Victor Chu’s company).
Internalizing management
We, Argyle Street Management, have done an internalization exercise ourselves.
After taking over Transpac Industrial Holdings (a Singapore-listed closed-end fund), we removed the external manager, internalized its management, liquidated its investment portfolio and returned capital to all shareholders. That saved TIH shareholders millions of dollars of fee expenses.
Disclaimer: the above is merely our opinion. We are not lawyers and cannot provide legal advice. Please get your own financial and legal advice.
If you are new to CMCDI, read our primer.
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2024年11月29日，招商局中国基金（133 HK，“招商局基金”）的独立股东将就其与投资经理的投资管理协议是否续签进行投票。
我们Argyle Street Management会投反对票。
如果反对票多于赞成票，那么由招商局集团及诸立力等人联合持有的现任投资经理将被免除。招商局基金将不再有外部的投资经理。
很多股东问我们：如果招商局基金将的投资经理被免除，基金将会怎么样？会陷入无人管理的混乱吗？
我们Argyle Street Management并不担心。
外部投资经理仅是其中一个可选项
招商局基金将是一家受《上市规则》第21章监管的“投资公司”，规则并未要求必须有外部投资经理。实际上，目前有几家受第21章监管的公司并没有外部投资经理（例如這个）。
招商局基金的章程（第152和153条）规定“［招商局基金的］董事会可以不时任命投资经理……”。换句话说，外部投资经理并非必需。
招商局基金将的外部投资经理权力有限
实际上，招商局基金将投资经理的权力可能比您想象的要小。
事实上，招商局基金将董事会任命的投资委员会有权“监督［外部投资经理的］日常管理职能”。
此外，任何单笔超过2,000万美元的交易都需要招商局基金董事组成的投资委员会的批准。对于净资产值约为6亿美元的封闭式基金来说，2,000万美元的批准门槛相当低。
换句话说，真正拥有权力的是董事会，而不是外部投资经理。即使投资经理被免除，董事会仍可以行使其权力。
招商局基金可以自我管理
招商局基金是一家上市公司，设有董事会。
第152条还规定招商局基金可以支付“薪酬或佣金”（即雇佣员工）。与任何其他“普通”上市公司一样，这些董事和员工可以管理招商局基金的事务。
为保持管理团队连续性，招商局基金可以聘请外部投资经理团队中的同一团队（不包括诸立力先生和简家宜女士）。
换句话说，招商局基金可以“内部化”(internalize)其管理，而无需每年支付超过1,000万美元的管理费用（其中45%归诸立力的公司）。
投资管理内部化（internalization）
我们Argyle Street Management已经成功进行了一次封闭式基金投资经理内部化（internalize）。
在我们控制新加坡上市封闭式基金Transpac Industrial Holdings（“TIH”）后，我们免除了外部投资经理，同时TIH聘用了投资经理的人员（即内部化管理层），清算了其投资组合，并将资本返还给所有股东。这样做为TIH股东节省了数百万美元的费用支出。
免责声明：上述仅为我们的看法。我们不是律师，无法提供法律建议。请寻求您自己的财务和法律建议。
如果您刚开始了解中国基金，请阅读我们的指南。
💬 微信: ASM_Argyle
💬 WhatsApp: +852 6317 6371
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