Fund Characteristics

In May 2010 following ‘disappointing investment performance’ the Board of Pacific Assets Trust plc (“the Company”), conducted a strategic review and announced that, from 1 July 2010, its investment management contract would move from F&C Asset Management to First State Investment Management (UK) Limited (“First State” or the “Investment Manager”), where the Asia Pacific team would manage the Company’s portfolio.

The team is large, very experienced and has offices in the region. They aim to build and manage a portfolio of companies that are part of the long-term growth story of the Asia Pacific region and that can outperform in spite of development challenges there. Stock selection focuses on identifying attractively valued companies, with good management, strong franchises and which can deliver sustainable cash generation. The portfolio is concentrated, with around 50 names and bears little resemblance to its benchmark, the MSCI All Country Asia ex Japan Index.

First State’s investment approach is clearly differentiated by the requirement that all investments are sustainable. This does not mean ‘green’, ‘ethical’ or ‘clean-tech’, but rather that companies have strong management and a robust business model in terms of earnings, corporate governance and codes of conduct. They are not seeking to promote uneconomic investment in socially acceptable propositions. Instead, they believe that companies which have carefully considered the sustainability of their business models are more likely to provide superior long-term returns for shareholders.

The First State team are very active in engaging with the management of the portfolio companies to ensure that they maintain their reputation and standing within the marketplace. This involves regular company visits and due diligence to ensure a company’s actions match its stated policies and ethics. Any discrepancies are followed up directly with senior management.

First State describe their approach as follows:

“Our starting point is a strong investment conviction that the sustainability positioning of Asian companies is playing an increasingly important role in determining long-term shareholder returns. It is now clear that most Asian countries will be unable to follow the same resource-intensive development path pursued by industrialised countries in the past. In crude terms, if everyone in Asia lived the same lifestyles as Europeans or North Americans, we would need at least three planets. Many Asian countries have now recognised this and are beginning to develop their own, more sustainable, development paths. This is creating new risks and new opportunities for Asian companies. Our goal is to identify and invest in companies that are particularly well positioned to benefit from these new opportunities while avoiding the laggards, whose businesses are increasingly coming under threat as Asia moves towards a more sustainable development path.”

First State’s performance fees are based on the Company’s performance over three and five years, which closely aligns them with shareholders. Furthermore, a large proportion of the team’s performance fee must be re-invested into the Company, which enhances long-term buy-in and the cohesiveness of the team.

Frostrow Capital LLP (“Frostrow” or the “Manager”), were appointed as the Company’s Manager, Administrator and Company Secretary with effect from 1 July 2010. Frostrow is an independent provider of services to the investment companies sector and provides administrative and marketing services. The Board took the decision to separate the investment management function from the administration and marketing because they believe this arrangement has considerable long term advantages.

Collins Stewart, the Company’s broker had this to say about the Company in Oct 2010:

“The appointment of First State has dramatically altered the investment philosophy and risk profile of Pacific Assets Trust. The focus is on the identification of quality companies that can deliver sustainable long-term growth and the new managers can demonstrate an outstanding long-term record of superior risk-adjusted returns. Although we would now typically expect the company to lag in liquidity-fuelled short-term rallies, we see undoubted potential for it to establish itself as a core holding for investors looking for Asian exposure.”