City Lon Inv Regulatory News (CLIG)

1 Dec 2006 12:00

City of London Investment Group PLC01 December 2006 For release at 1200h, 1 December 2006 CITY OF LONDON INVESTMENT MANAGEMENT COMPANY LIMITED OPEN LETTER TO THE CHAIRMAN OF TEMPLETON EMERGING MARKETS INVESTMENT TRUST PLC City of London Investment Management Company Limited, a wholly owned subsidiaryof City of London Investment Group PLC, wrote an open letter yesterday eveningto the Chairman of Templeton Emerging Markets Investment Trust PLC, Sir RonaldHampel. The text of the letter is set out below. "Dear Sir Ronald, Templeton Emerging Markets Investment Trust PLC ("the Company") We refer to the various exchanges of correspondence and meetings we have hadwith you over the last several months. As a result of what we consider to be alack of progress, we are now writing to you in the form of an open letter thatwe intend to publish. As you know, City of London Investment Management Company Limited ("City ofLondon") manages funds which in aggregate hold in excess of 13 per cent of theCompany's issued shares, the largest disclosed shareholding in the Company. Someof these funds have been invested for over 4 years. City of London's principal concern is that the Company's shares consistentlytrade at a wide discount to their underlying net asset value (NAV). At present,the discount is approximately 12.5 per cent; the average over the past year hasbeen 12 per cent and over the past three years has been 14 per cent (source Cityof London). This level of discount has been experienced despite a bull marketfor emerging markets, the size of the Company and the liquidity of its shares.We find this level of discount at this point in the emerging markets cycle to beunacceptable and are particularly concerned at the probability of the discountwidening further when the emerging markets bull market comes to an end. In our discussions with you we have suggested that the Company takes theinitiative to protect shareholder value and to introduce effective discountcontrol measures. You have stated that the Board has been provided with a rangeof shareholder feedback and that there are those shareholders who have asked theBoard not to try to manage the discount while other shareholders, such asourselves, are keen for the Board to intervene. You have also stated that eventhose shareholders who want discount management have differing views on themethod. City of London believes that the implementation of appropriate measures, takenby the Board, to manage the discount are in the best interests of allshareholders and we urge the Board to canvass the views of all the Company'sprincipal shareholders, with a view to taking action that is likely to satisfythe majority of shareholders. We find it difficult to believe that otherproperly-informed investors would not prefer action to be taken to manage thediscount since discount widening, as the asset class falls out of favour in acycle down-turn, will lead to destruction of shareholder value. We have the following observations which may be contributing to the discount:- 1. Our research shows that the Company, when compared to the S&P/IFC Emerging Markets Investable Composite Index, has become over the past five years an index tracker in terms of its investment performance. Our concern is that the Company is paying investment management fees for active management but for what seems to be index tracking investment performance. 2. We expressed our concern in July this year and again in October at the errors, which resulted in the Company making announcements, that had been made by Franklin Templeton Investment Management Limited in the calculation of the NAV of the Company's shares. 3. At the recent AGM of the Company we supported your re-election to the Board in the belief that there was genuine concern within the Board regarding the issue of the discount, that you needed time to convey our message on the issue and subsequently to implement some discount narrowing measures. 4. Is it possible that Templeton Asset Management Limited has become too large, or has launched too many additional emerging markets products, as a result of which the management team has become too stretched? City of London does not wish to prescribe a course of action to the Board infinding a solution and we remain open to consider various different options. Wewould not rule out any of the following being considered at this stage: abuyback of shares; a number of significant tender offers; partial open-ending byre-construction (we note that the various Franklin Templeton BRIC Funds have anopen-ended structure); changes to the Board; or a transfer of the investmentmanagement contract to another (first quartile investment performance)investment manager. At the same time, should the Board not take steps which we believe could orshould reduce the discount in the interests of all shareholders, City of Londonwill consider the option of requisitioning an appropriate resolution at ameeting of shareholders. I look forward to receiving the Board's response. Yours sincerely Clayton Gillece,Director For further information contact:Clayton Gillece, Director Simon Hudson / Clemmie CarrCity of London Investment Management Company Tavistock CommunicationsTel: 020 7711 0771 Tel: 020 7920 3150 NOTES TO EDITORS City of London is an asset management group whose principal activity isproviding emerging market asset management products and services predominantlyto institutional investors via its principal operating company City of LondonInvestment Management Company Limited. The Group is based in the UK and also hasoffices in the US and Singapore. Clients include some of the US's leading bluechip institutions and endowment funds. With total funds under management of approximately US$3.0 billion, the Groupmanages several Open Ended Funds as well as a number of segregated accounts. TheGroup's fund mandates are mainly in emerging markets, although the Group hasmore recently diversified its asset management product portfolio by the launchof a natural resources fund and has also seeded three new funds: a global fund,a frontier fund and an emerging markets yield fund. The Group seeks to providecapital growth for clients through active country allocation and stockselection. This information is provided by RNS The company news service from the London Stock Exchange