Update: Two weeks after receiving a cheeky merger proposal from the £35m Ashoka Whiteoak Emerging Markets (AWEM ), the £656m Asia Dragon (DGN ) has announced a full strategic review that could see the investment trust become the latest to drop Abrdn (ABDN) as fund manager.

With its shares continuing to trade at a double-digit discount to net asset value (NAV) despite last November’s merger with Abrdn New Dawn creating a larger, more liquid and cost-efficient fund, Asia Dragon chair James Will said it was time to review its investment management arrangements.

Stanhope Consulting has been hired to assist in the review which will include a beauty parade of aspiring managers. This could include the Ashoka trust after it threw its hat into the ring saying it had previously received support in principle from 56% of Asia Dragon shareholders.  

Will said: ‘The board will be interested to consider proposals from established fund management groups with experience of managing equity strategies similar to that currently pursued by the company. Any such proposals will be considered alongside the current management arrangements.’

Broker Deutsche Numis expected there would be significant interest in the £724m Dragon portfolio. Despite the trust’s weak performance over one, three, five and 10 years, Abrdn remains in the fight and will be keen to retain the trust after a bruising 15 months of contraction for its investment company range.

Today it has also been hit by Abrdn European Logistics Income (ASLI ) announcing its decision to wind down.

Numis analyst Ewan Lovett-Turner said: ‘The [Dragon] board’s comment about similar equity strategies implies that it intends to keep the Asia-focused approach, which may point to a rebuttal of the Whiteoak approach with an emerging markets mandate.’

‘The board of Asia Dragon will need to consider its options in close consultation with shareholders,’ he added. These are led by discount hunter City of London Investment Management, which holds 30%, although wealth managers and private investors are also backers.

Asia Dragon shares eased 0.9%, or 3.8p, to 410.2p, 10.4% below their net asset value of 457.5p. The discount has halved in the past five weeks, sharply narrowing after AWEM’s approach.

AWEM is proposing a 50% tender if it wins the contract which may attract some shareholders. Unusually, it also offers an annual 100% tender offer to its own shareholders, meaning discontented Dragon investors could quickly get all their money out at ‘par’ if they back its offer.

‘It makes sense that the Asia Dragon board wants to maximise the opportunity for shareholders by canvassing approaches from other parties. It is hard to see how anyone is going to compete with a 50% exit opportunity, however,’ said QuotedData analyst Andrew Courtney.

Stifel’s Will Crighton agreed Ashoka’s offer was attractive. ‘We think shareholders will be most interested in an opportunity to realise some, or even all of their holdings for cash – especially given 68% of Abrdn New Dawn shares opted for the cash exit during the merger, but this was scaled back to 25%.’

AWEM shares were flat at 113.4p on a discount of around 2%. 

‘Regardless of outcome, we are encouraged by the willingness of boards across the investment trust universe to consider manager changes, combinations or strategic pivots to maximise shareholder value. This emerging dynamism, enhancing both scale and manager quality, should stand the sector in good stead and contribute to investor sentiment,’ said Winteflood analyst Shavar Halberstadt.

Excluding 3i Group (III ), investment company shares trade at an average 13.5% discount after a widespread derating prompted by uncertainty over inflation and interest rates.