Pressure is on Regal Partner’s listed VGI Partners Global Investments (ASX:VG1) vehicle to address the large discount to NTA.
Considering converting to open-ended class might be better for Regal Partner’s bottom line in the long run, not to mention long suffering shareholders.
Pressure ramped up further just this month when the VGI founder was still taking leave, as Rob Luciano’s VGI Partners cops Zenith downgrade (afr.com).
PRESSURE MORE GENERALLY ON THE ASX LIC CLOSED END FUND STRUCTURE RECENTLY
Just in the last month or so has been a wave of news leading to question marks of the long-term future of the ASX closed end fund sector.
Magellan (MGF ASX wind up of sorts) or open-ended conversion?
With Magellan Global Fund (ASX:MGF) just this week we saw Nicholas Bolton amongst a group of 100 unit holders requesting a meeting to consider a structure where MGF ASX would delist, and investors can soon redeem their units at NTA.
At the same time we also saw an announcement from MGF that they would consider their own separate plans and timetables to potentially convert to open ended class units.
Forager potential conversion to open ended structure
Surprisingly to many, Forager Australian Shares Fund (ASX:FOR) just last week also announced a plan to consider restructuring the fund to open ended format. This fund actually began as open-ended, but in 2016 voted to list on the ASX as a closed end vehicle.
Geoff Wilson and WAM LEADERS offering a new open ended structure?
In September the AFR reported Geoff Wilson (longtime advocate for ASX LICs), is preparing to raise money for an open-ended version of the firms successful Wam Leaders Ltd (ASX:WLE).
CONTROVERSIAL VG1 ASX FEES
To quote from the AFR article I linked to earlier above, “Seth also called out VG1’s management and performance fees, which he branded as “uncompetitive” relative to other global long/short strategies and “poorly constructed” due to the lack of an appropriate benchmark.
The company charges management costs of 1.54 per cent a year versus a sector average of 1.25 per cent. A performance fee of 15.4 per cent is charged against all positive returns (after management fees), subject to the recoupment of all prior losses.”
I made reference to long suffering shareholders earlier above, as a result of coming across the following table also from the article, pictured below.
Source: Zenith Investment Partners via the AFR
VG1 ASX FAILURE IN HEDGING THE CURRENCY RISKS
Quite unusual for Australian funds investing globally, VG1 ASX has generally remained hedged for the risks of a declining AUD.
Unfortunately for shareholders, had they remained unhedged like their competitors, VG1 ASX would have been better off. The Australian dollar has weakened considerably since VG1 ASX listed back in 2017.
VG1 ASX AND THE LONG-STANDING LOW NET INVESTED EXPOSURE
VG1 ASX shareholders also have seen a low net invested position of the portfolio detract from potential returns since listing in 2017.
BRANDING FOR THE VG1 ASX LIC
When Regal Partners and VGI Partners merged last year, not so long after the VGI Partners Asian fund was soon rebranded to be called Regal Asian Investments.
Thus far though, there has been no branding change of VG1 ASX.
WHAT A VG1 ASX LIC WIND UP COULD MEAN TO THEIR AUM FEE REVENUE
A solution for the investors’ frustration of the large discount to NTA could simply be to wind up VG1 ASX.
Interestingly, VG1 ASX floated in September 2017, meaning a 10 year IMA term would roughly be approaching in about 4 years.
Should it get to that stage of winding up, the fund manager may kiss goodbye to a management fee revenue stream well into the future that potentially could have otherwise existed.
Interestingly the very active buyback in recent times already reduces the potential size of future AUM fee revenue anyway to some extent.
Also, one wonders if in recent years some investors have already redeemed money from VGI Global Partners unlisted products, in order to buy VG1 ASX at a discount to NTA? If so, such a practice also reduces overall AUM fee revenue to the manager.
WHAT A VG1 ASX CONVERSION TO OPEN ENDED CLASS UNITS STRUCTURE COULD MEAN
An alternative to a wind-up, could be that like Magellan and Forager in the last week, the fund announces an intention to convert to open ended.
Whilst some investors may well take the opportunity to redeem, the manager could hold onto plenty of AUM fee revenue for many years to come. The most recent year has shown an improvement to the performance of VG1 ASX, which may persuade many investors to stay in a new format. Likewise, VG1 ASX in such a process may consider whether a future tweak in the management fees it charges may be appropriate. It may also be a good time for a wider strategic review of how the fund is being managed.
WHAT WOULD OTHER VG1 ASX ACTIVIST SHAREHOLDERS BE THINKING?
Notable shareholders of VG1 ASX in the past have been reported, such as the likes of David Kingston, Saba Capital Management, 1607 Capital Partners, WAM Strategic Value, Global Value Fund.
VG1 ASX AGM COMING UP IN NOVEMBER
According to ASX announcements VG1 ASX has an investor webinar coming up on October 27th. The AGM is likely to follow not too long after some time in November. The shareholder voting might be worth watching. Interesting times ahead.