Activist hedge fund Carrousel Capital has raised doubts over restructuring plans at the Templeton Emerging Markets investment trust, highlighting ongoing investor tension around valuation discounts and liquidity mechanisms in closed-end funds, according to a report by Reuters.
Carrousel Capital, which recently increased its stake in the £2bn trust to just over 4%, said it intends to engage with the board as it seeks greater clarity on a set of proposals aimed at addressing shareholder concerns over the trust’s discount to net asset value.
The trust, managed by Mark Mobius, has proposed allowing investors to partially exit their holdings through a conversion mechanism into tracker-style shares, alongside a share buyback programme intended to narrow the discount over time. However, the absence of a clearly defined target discount level has drawn criticism from some shareholders.
Carrousel’s chief executive Bruno Sangle-Ferriere said the structure of the plan leaves key questions unanswered, particularly around whether the measures would meaningfully tighten the discount or simply shift it over time. He suggested the proposals lacked sufficient precision to assess their long-term impact.
The debate comes against a backdrop of widening discounts across emerging markets investment trusts, with Templeton Emerging Markets trading at a double-digit discount to net asset value at the time of the announcement, broadly in line with its recent trading range but wider than earlier in the year.
While some large shareholders, including City of London Investment Group, have indicated support for the restructuring plan, others remain uncertain about its effectiveness. Analysts have also questioned whether the proposed mix of partial redemptions and buybacks represents the most efficient way to address the discount, with some suggesting that a more straightforward tender offer could have been preferable.
The trust’s board has said it does not intend to set a fixed discount target, arguing that the measures are designed to balance liquidity for shorter-term investors with stability for long-term shareholders. It has also pointed to recent buyback activity as part of its broader approach.
Carrousel has not yet confirmed how it will vote on the proposals, leaving the outcome dependent on ongoing discussions with the board and other major shareholders.
