Last week we sent an email to investors in the Forager Australian Shares Fund (“FASF” or the “Fund”) notifying them that we will soon be closing the Fund to new and additional investments. We are also proposing two unitholder meetings to, initially change the responsible entity of the fund, and then to consider converting the fund into a closed-ended vehicle and listing it on the Australian Stock Exchange (ASX). Here is an explanation of what we are proposing and some common questions we have been answering.
Please note that the following is my explanation of what’s happening. Investors in the FASF will receive documentation from the Fund’s Responsible Entity in the coming weeks.
Why are you capacity constrained?
The Forager Australian Shares Fund has found the odd large company to invest in but most of our returns have come from the smaller end of the market. There is a limited universe of investment opportunities in this space and, because liquidity in these stocks is nothing like the largest stocks in the market, we need to carefully consider the size of our investments in each.
I have previously said that I thought the natural limit to what we could effectively invest in Australia was $150m-$200m. Nothing has changed our thinking on this.
Thanks to good performance and inflows, our funds under management is rapidly approaching the bottom end of this range. Last week we told investors that we will not be accepting any new investments into the FASF after Friday 7 October 2016.
Why can’t you close it to new investments and leave it as is?
We can.
But, while contemplating the necessary steps for an orderly close of the Fund to new investments, we have also been considering how else the Fund might be improved. The Fund has been well served to date by its unlisted unit trust structure. We have had relatively consistent net inflows and the vast majority of investors have an appropriate long-term investment horizon. But is this the best vehicle for the type of investing we practice?
The Fund owns a lot of small, illiquid companies, yet it offers investors the ability to redeem on a weekly basis. Investors expect us to be buying in times of market distress, taking advantage of others’ forced selling. But is that actually feasible in an open-ended fund?
The problem with redemptions
The problem is a mismatch between the liquidity offered to investors – weekly redemptions – and the liquidity of the underlying investments the Fund owns. Roughly half of the portfolio is currently invested in stocks where it would take more than one month to liquidate (in an orderly fashion) the investments. Selling them in a hurry could have a significant impact on prices, which then impacts performance, which could lead to more redemptions.
We could be faced with a situation where, rather than being opportunistic and buying stocks in times of market distress, we might be selling into illiquid markets simply to satisfy redemptions. We’d become a forced hand. That has the potential to affect me as the manager and every remaining investor in the fund.
Can’t you manage this liquidity risk?
Yes. As I write some 30% of the Fund’s assets invested in cash or highly liquid stocks. We have capacity to meet plenty of redemptions and we could make sure it stays that way.
That is not what most of the Fund’s investors want. Including me. If history is a guide, there will be another market meltdown like 2008/9 at some point over the next 30 years. If this happens, we want to be able to be as fully invested as possible. If we need to manage the portfolio for liquidity, it is going to severely hamper our ability to do that.
Why an ASX listing?
The solution we are proposing is to close the fund to redemptions (as well as applications) and list it on the ASX as a closed-ended fund. This would mean that there are a fixed number of units on issue and that, instead of being able to redeem units and draw liquidity from the Fund, investors can only buy and sell units on the ASX.
This is the ideal investment vehicle for our investment style. We know exactly how much money we have to invest, rain, hail or shine, and can get on with the job of investing it for decades to come, free from the spectre of redemptions.
An ASX listing also allows investors to continue adding to their investment by buying units on market.
What is the downside for investors?
There are obviously trade-offs for investors, or every fund would be a closed-ended listed vehicle. The most obvious being is that many closed-ended funds trade at a discount to their underlying net tangible assets. At the moment FASF investors can send in a redemption notice and get their share of the net asset value with less than a week’s notice.
If it becomes a closed-ended vehicle and an investor decides they want to cash out, the price they receive will depend on the pricing and liquidity available on the ASX.
It is clear what should be done to keep the discount to a minimum (the good ones trade at a premium). Costs need to be kept low relative to the vehicle’s assets. The manager needs to provide consistent communication to potential investors. Performance needs to be good. And the manager needs to always put investors’ interests first. That means not issuing dilutive units and buying them back when it makes sense (ideally adding value in the process).
Forager should be able to tick all of these boxes, but it remains a fact that, on the day you wish to sell units once it is listed, the price you receive will dependent on the market. And that will likely be disadvantageous at times. For the reasons outlined above, we think the long-term performance advantages outweigh these issues, but each investor will have to weigh up the pros and cons.
What would it cost and who pays for it?
Our aim is to get the FASF onto the ASX at no cost to investors. Forager Funds Management is going to bear the conversion and listing costs.
The ongoing fee and recoverable expense regime is not changing.
Would it change the way the portfolio is managed?
There would be no change to the investing strategy or concentrated nature of the portfolio. With less liquidity concerns, we could possibly be more fully invested but you should expect similar types of opportunities to crop up in the portfolio.
Why a LIT and not LIC?
We investigated the option of converting the trust into a listed investment company (LIC) but formed the view that the current trust structure is better for our investing style and existing investors. Most of the historical returns have been in the form of discounted capital gains (held for more than 12 months) and it is our expectation that this will also be true in future.
We believe a trust is more likely to be able to be able to pass those tax advantages through to investors than a company.
What does that mean for distributions?
Most LICs try to pay consistent and regular dividends. As a trust, the FASF will still have to distribute all of its taxable income every year, including realised capital gains. As the timing and amount of realised gains is irregular, distributions will probably be highly variable (as they have been historically). The availability of a distribution reinvestment plan will depend on capacity constraints and will be considered on an annual basis.
What happens next?
Investors and potential investors have been informed that the final date for accepting applications will be Friday 7 October 2016.
Unitholder meetings will be held shortly thereafter to consider resolutions that, assuming they are passed, will enable the Fund to be listed. If successful, we would hope to have the units trading on the ASX before Christmas.
What about investors who don’t want to be invested in a listed vehicle?
The redemption facility will be available until listing.
Where do I learn more?
You can ask questions on this blog, call us on (02) 8305 6050 or send an email through to [email protected]
Will you provide a guide as to when you would consider buy backs ? for example, if the NTA discount hits a certain level ? Or will it be discretionary ? I’m happy to add more if there’s a discount !?
Hi Christian. It will be discretionary. Rules are red rags to robots.
hi Steve
when the fund is listed on the ASX will there be options given to unitholders as well ?
I should probably leave the answering to Steve, but I’m pretty sure the answer to this one is no. Those ‘free’ options LIC floats give out are more to the benefit of the fund manager rather than the investor. I might blog about it one day. You don’t want your fund manager giving you ‘free’ options.
Hi Steve
Firstly I want to convey that I get what you are trying to do and I believe it is an excellent strategy.
To however clarify your comments in relation to:
Q. What about investors who don’t want to be invested in a listed vehicle?
A. The redemption facility will be available until listing.
Seemingly if the investor vote to list on the ASX is successful then those whom vote against a listing have freedom to redeem funds until the listing date – sometime before Xmas. This is also true for any other investor whom may for whatever reason also wish to redeem prior to listing date.
Unless I am interpreting information incorrectly, from the 7th October to listing date there can only be one way traffic, being redemptions. As the fund is now close to the bottom end of the range.
1) Could you please comment on contingency plans if the fund is excessively redeemed post 7th Oct and Pre-Listing Date – assuming that your cash holding reserve strategy is to be maintained at same/similar levels.
3) Could this push the listed fund towards a capital raising post-listing date as a contingency plan – and how would this affect the ASX “Share Price”.
4) (or) would you consider redeeming investments in an orderly fashion to rebuild cash reserves, for opportunistic investment purposes, and operating a smaller overall value fund?
Hi Dale, excellent questions.
1) We think problems are unlikely given current cash levels and expected net inflows between now and then but in an absolute worst case scenario we would have the normal constitutional ability to restrict redemptions in exceptional circumstances.
2) Yes, if we think the vehicle is sub-scale we could consider this down the track but would only do it if it was not dilutive. Another alternative would be to let investors reinvest distributions until it reaches the size we want it to be. Again, we are contemplating closing it now because we think it is highly likely we will end up with an economical vehicle but these contingencies are all worth thinking about.
Hi There. This may be a novice question but I plan to hold units when the fund becomes tradeable on the ASX. How will we be able to view these units? Is there a way I am able to see the market price of the units at real time? Is it also possible to show holdings of these units on an existing broker platform where I own other shares on (e.g Commsec)
Regards
Hi Jim,
Yep, you will provide us with your HIN as part of the process and, assuming the listing goes ahead, your units will turn up in your broking account alongside the rest of your holdings. I’ll be encouraging everyone to take the same long-term view they do at the moment, though, and only look at it once every few years!
Alex tells me we are also working on a solution so you could still see your Australian Fund investment next to your International Fund investment in the Forager website.
Thanks for your response Steve. Assuming the listing does go through I will be looking to buy more units on the dips of trading (or whenever I believe it is a good time to acquire more units) as I do believe in the good work and investing philosophy behind the fund.
Plus I’m only 24 years old so I still have a long amount of time to expose myself to the growth potential of Australian Shares.
What proportion of the fund is held by institutional shareholders ?
As far as I am aware, zero.
Hi Steve
I have admired your investing style for a very long time (and take carefull notice when you are interviewed for comments on investment issues)
I suspect that the Internatioanl Fund will be following suit in the near future?
I have every intention of remaing fully invested with Forager Australia and International and have a very long term investment horizon.
All the best
Graeme
Hi Graeme. See my comment below on the International Fund but we don’t have any plans to do anything similar.
Why did you neglect to mention a conflict of interest: Listing means perpetual fees to the manager. This provides a permanent disincentive to perform-you will never suffer net redemptions!
Why wasn’t this mentioned I wonder?
Hi Spencer,
Fair point. There is no doubt that permanent capital is a much more valuable asset for a funds management business than the same amount of temporary capital. A few things I’d like to say in our defense though:
1) I’ve been working at this for the past seven years and two years in we had less than $20m in the Australian Fund. The first $50m is far and away the hardest to raise and then, as long as you have a track record, it gets much easier from there. With the returns we are showing at the moment, it would be very easy for us start distributing the fund to financial advisers and grow it to $500m in the next few years. If our aim was simply to maximise fees, capping our FUM in the strategy would be a crazy idea, permanent or not.
2) We are going to set this vehicle up so that we can be fired if we don’t do our job properly. No long-term management contracts and no poison-pill termination fees. If 50% of unitholders decide they want to wind the fund up and get their money back, there should be nothing stopping them from doing so.
3) We get paid 80bps in base fees on this fund. Let’s say we get to $150m, that’s $1.2m in annual fees. There isn’t much change from a few employees, rent, compliance etc etc. If we don’t get performance fees, we don’t make much money.
4) I have half of my assets in this fund and half in the International Fund. No other investments, apart from the business. Not even a house. You can rest assured that I am incentivised to perform.
I think this is a really important step for the fund and our business, so am likely to accentuate the benefits. So please keep the comments coming – I want it to be an open and transparent process and it’s important we have plenty of people making sure investors are considering all of the issues.
Cheers,
Steve
Good question. Good answer.
Given that the set up cost is going to be zero for investors I presume the fund will be converted on day 1 at the precise NAV on that day and units allocated to investors reflecting that?
Hi Nick. You are correct.
Very thorough explanation of the thinking behind the proposal and LIT process. Appreciate it.
Any implications for International Fund down the track?
Seems like the same arguments probably apply, although FUM may be well short of any cap given the fund’s young age.
Thanks, Ron P
Hi Ron,
We’ve had a good couple of years with the International Fund but still have a lot to prove. Most importantly, though, we don’t have the same liquidity issues internationally that we do in Australia. If we do something similar down the track it, it won’t be for quite a few years and not until we think it becomes important for the performance of the vehicle. For some reference on that, my view is that we could scale what we have today to $500m fairly easily.
Great work Steve and Team,
looking forward to long-term future investing with the team.
No questions, but a comment is that I cherish the thought that the Fund could trade at a discount to the NTA.
Another comment is that you guys are relatively poor marketers (another good thing) and when I rang this morning to accelerate some money in they couldn’t find the Bpay number!
Hi Steve.. please excuse me if this is a silly question….if I understand it correctly and the fund has no DRP option as at present then all holders would need to reinvest any distributions on market according to the price re NAV and liquidity situation to get the full compounding effect.. I am thinking this which would have to give a run on the market price at each distribution point for those (us) wanting to reinvest.. if so, is there, or have you looked at any other structure that has no distributions at all and just let each units NAV grow infinitely…
Hi steve
I like what you are planning but worry about the process of floating it at no cost to unit holders. Does this mean someone else will have the opportunity to put in venture capital? If yes will they receive huge incentives such as shares at a 10:1 ratio in the event of a successful float? If the answer to these is no how will the float be funded?
Hi Mark, Forager is paying the transition and listing costs. There won’t be any reward for that, so you don’t need to worry about dilution or repayment from the Trust’s perspective. The shareholders and directors of Forager think this is a worthwhile investment for the business and the future of the Fund.
steve, will there be a platform for buying LIT units through Fundhost or will it be best to open a share trading account to facilitate future unit buying or selling?
Hi John,
Investors would need an account with a broker to buy and sell units. Fundhost isn’t able to offer that service.
Hi Steve,
As part of my investment in the Australian Fund, I have automatic monthly direct debits set up for additional contributions. I take it this will be cancelled and if I wanted to purchase additional units I will do it through my broker instead?
Hi Liam, you are correct.
Hi Steve. I was just about to invest in the Australian Fund and may still do so. I liked it because it seemed a family friendly fund, with a solid returns history along with comfortable capital stable security. If I go ahead now then I am guessing the capital security is, to some degree at least, put at risk with the whim of the stock market players. The fund as it stands seems to be attractive to the long term investor just wanting there investment to sit there and grow slowly. What will happen if those investors vote against progression to a listed entity? Also if redemptions are a problem, could it not be changed to a 1, 2 or 3 months notice of redemption system or if in the case of an emergency when an investor needs instant withdrawal it is done via a loan against the next 1, 2 or 3 months, the costs of which would be built into the system.
Hi Greg,
If unitholders vote against listing, we will still restrict new inflows but the fund will continue on as an unlisted fund and we will keep the weekly redemption option as it is at the moment.
That’s an interesting question about capital security. You are absolutely right that the “value” of your investment, as defined by the market price, will be more volatile and dependent on the whims of the market. It is my view, though, that the underlying value of the trust itself will be more secure, as the risk of forced selling because of redemptions will be removed under the proposed structure. So we think it is a better vehicle for us to grow value over the long term, albeit there is likely to be more market price volatility along the way.
We thought about lots of alternate mechanisms to deal with liquidity risk, including longer notice periods and the like. Weighing everything up, though, we decided properly closed and listed was the best of the lot. Firstly, long notice periods don’t really do away with redemption risk. They just give you time to deal with it. Secondly, people who are in a rush to get their money back would probably prefer to be able to access the market immediately, even at a discount, than wait three months for their money.
Hi Steve, I’ve been with you since the start and have confidence that you and your team have our best interests at heart. Once a public LIT, would buybacks not be used when the share price was below NAV? This could be used to protect against shorters moving the share price too much. I suppose it’s all down to liquidity of the trust again. My only concern about listing is that we will list at a discount to NAV. (Current Forager members understand and appreciate your team’s skills. We need to make the market aware of this as well.)
I can’t seem to find it anywhere else so apologies if my Q’s has been asked. What % is required from the unitholders vote for it to pass? How many days do you expect it will take for the units to turn up to the broking accounts once they leave fundhost? and do you have any idea what the liquidity will be like? I assume most if not all unitholders are true looooooong term holders and therefore they won’t be many buying opportunities because no one will be selling? thankyou for your time, cheers
Hi J,
We unfortunately have to have two meetings. The first is to change the Responsible Entity and will require 50% of all unitholders via entitlement. The second is to change the constitution so it can be listed and will require 75% of units that are voted.
As long as you provide the registry your HIN as part of the process the units should be in your trading account on day 1.
Even long-term holders sometimes need to sell. No guarantees but historical redemptions have been 2-5% per annum. That could perhaps increase over time.
Cheers,
Steve
Have redemptions been a problem to this point?
I quite like how this has been a successful, under the radar fund and while I agree with the idea to close the fund for some reason I am less sure about it being listed.
For a new investor, which would be better, apply now or wait and buy on market?
Hi Fiona,
I can’t answer that question for you. If you invest before the listing you know that you can invest as much as you want at net asset value. If you wait, you may be able to buy at a better price, or you may not. There is no way of knowing how likely that is.
I wouldn’t expect significant selling on day one – most of our investors have been with us a long time, have had a good experience and have the opportunity to redeem at NAV prior to listing – but there really is no way of knowing.
As J suggests above, if most investors in the fund are truly long term, there may be few buying opportunities. The flipside of this is that there may be few if any investors at a given point in time who are willing to pay anything more than a significant discount to asset backing. Sufficient liquidity is something that is often not given much thought until such time as you need to sell, and however committed we may be, nobody knows what the market conditions will be at that point.
I appreciate that happy current long term holders might not feel as much pain if they had to accept a sub asset backing price. But even with the willingness to commit long term, an extended period of market turmoil and/or manager underperformance could leave units trading well below par with few takers. This becomes one market risk upon another market risk.
While your fees on the lower assets will still shrink somewhat due to a broader market decline, is it not the investors who take on the significantly greater share of risk with such a listing? I understand and agree that remaining holders should not be disadvantaged by those who bug out at the first sign of trouble, but individual circumstances change unforeseen, people retire and need to draw down, get sick and ultimately have their estates settled if they die. Is it any fairer that they, through an accident of timing, are potentially left with no option other than to sell (assuming there are any takers) at a significant discount?
Please note that I am certainly not absolutely against the proposal, nor questioning your good intentions.
Hi Wayne,
We’ll aim to ensure the best secondary market we can. As I’ve said several times before, it’s fairly clear what makes for a successful vehicle. And, if we continue doing our job well, I don’t see any reason there shouldn’t be a steady stream of investors willing to buy units at something like NAV.
But I also don’t want to dismiss the risks you are talking about. We are putting a proposal in front of investors and I want everyone to vote having given serious consideration to both the pros and cons. My guess is it’s highly likely that there will be times when it does trade at a discount to NAV, and that those forced to sell at such a time will be worse off than under the current structure.
I am biased here because my mutli-decade timeframe is longer than most, but we are recommending it because we think the benefits to long-term returns outweigh those risks for the average investor. But I hope and fully expect that everyone will vote for what is in their own interests. Just a reminder on this front that we are making sure there is a redemption window after the final unitholder meeting. Every investor should feel free to vote against the proposal and still be able to redeem their investment if most unitholders disagree with them.
Hi Steve
Thank you for making yourself available for the questions.
This was certainly not my choice, but will follow the majority choice.
I have a question regarding the effective entry price for the units for taxation purposes, will it be the listing price (even for someone like myself who has had multiple entry points in the fund at various stages).
Additionally, I presume there will need to be a tax adjustment prior to listing to allow distribution of any remaining liabilities.
Best wishes
Es
Hi Es,
My understanding is your cost base won’t change. You would still own exactly the same units you own today, they would just be listed rather than unlisted. The listing itself won’t effect your tax position. Same with regards the distribution, we don’t anticipate anything out of the ordinary.
Hi Steve
Good news, I’m not a fan of open ended funds. They just breakdown in extremely distressing times
Woa hoo! Now we can play that game – revision to the mean! The value doesn’t change only the price the marginal buyer and seller agree to.
Now I just have to wait for December. And just mention to Gareth his shares in Boundary Bend are worth $5 (that’s what someone is offering to pay)
Although the present may seem a good time to float a LIC/LIT, with many trading at a premium, my concern is that during the past ten years several LIC’s, having issued shares at a discount to the clients of certain financial planners, ended up being liquidated following actions by the financial planner(s). Of course if Forager trades at a premium there is little to worry about, but during the GFC companies like WAM traded at very large discounts for a period. I do not quite understand how the LIT structure protects investors from opportunistic predators in times of major market downturns, where small companies typically have greater price falls than the market as a whole, though it may be even worse with the present legal structure. Will there be any prohibition on the managers issuing new units in large blocs? Is there to be any prohibition on say the owners of the management company selling their shares in Forager, plus management rights to others, who then might unsuccessfully run the company/trust. I am thinking of an LIC you probably remember, which has been through a few name changes and has not done so well? Not mentioning for legal reasons.
Since the present management of Forager is, I presume the reason for its success have you a comment on this.
Hi Garry,
I’ve provided a few lengthy responses to some of your questions in previous answers, so worth checking those out. But all extremely valid concerns. A couple of key differences that we will be able to highlight once we have a final constitution and management agreement:
1) No entrenched management. If a majority of unitholders want to fire the manager they should be able to do so
2) Clear liquidation rights. If majority of unitholders think the vehicle should be sold and the assets returned to unitholders, they should be able to do so.
And finally we have a fairly long history (some 13 years since I started at Intelligent Investor) in public view. Perhaps I should leave them speak for themselves but I think most clients who have been with us for a decent stretch of that time would vouch for us doing the right thing.
PS I don’t think you need to worry too much about mentioning that company you are talking about … your statement would be impossible for them to refute.
Another reason I’m not in favour of changing is the power of compounding. In the fund it was easy to set up a reinvestment of annual dividends/distributions. Now even if there were a reinvestment plan, each year would present a different decision due to the mood of Mr Market. It has been really, really difficult finding fund managers to trust with my money, that have a decent track record, fair fees, transpsarent communication and finally, access only to ‘sophisticated’ (*rich) investors. *sigh* sorry for the whinge.
Hi Glenn, I’ll take that as a back-handed complement!
I understand your frustration. As you know my only investments are our two funds. I am only 38 years old and want to compound my money for many decades. Restricting the size of the fund, whether listed or not, isn’t going to help. But neither is letting it grow to a size where we can no longer meaningfully outperform the market.
It is my view that we are going to generate much better returns expanding what we do into international markets, rather than expanding into larger cap stocks. So my plan is to opportunistically add to my Australian Fund investment if the market allows it but otherwise take my distributions and invest them in the International Fund, where we have decades of compounding ahead of us.
Understandably, there is trepidation about our ability to replicate our local performance internationally and I expect it could take a decade or so to prove ourselves. But with a bird’s eye view of things, I can assure you fear and greed are just as prevalent in other parts of the world. We’ve come a long way in building the experience and expertise we need to take advantage of it.
Cheers,
Steve
Hi Steve and Co.
The cynic in me suspected that going evergreen may have been a way to increase the value of the management rights at the expense of investors. However, given that the manager is paying for the listing costs, it is clear that this is based on protecting investor capital. Good work practising what you preach in terms of corporate governance; an increasingly rare trait in investment managers these days. Hope the float doesn’t cause too much distraction.
I am impressed, Steve, that your whole portfolio is in these two funds. I believe that the very large companies should ensure the remuneration to key people (CEO, etc) should be oriented towards the success of their shareholders. Instead of having huge, multimillion dollar salaries they should have a reasonable salary (in the low hundreds of thousands rather than in millions) with the rest of their package made up of shares in the company (not options). That way, if they want to do well, shareholders will do well. I believe that is the basis under which Buffett works.
I was initially a little concerned at the size of the management fees with the current performance but your explanation put that right into perspective. It does cost money to run an organisation like this with good people.
I have been a holder in the Australian Fund since its inception and have also been instrumental in a relative investing. On both counts I am completely satisfied. Your frank openness has been a refreshing experience.
Hi,
Sorry to introduce the F word……are Franking credits likely to be available under the proposed listed approach ?
Hi Paul, it will be the same as the current structure, so we will distribute any franking credits the trust receives (but the trust is a pass-through vehicle so doesn’t pay any tax of its own).
Most of the returns have historically come from capital gains rather than dividends and that is unlikely to change. I’d estimate the current portfolio dividend yield at about 2% fully franked, so you might get 50bps to 1% of franking credits a year on the current holdings. But the portfolio can change a lot over time and it could be zero.
steve, we are in receipt of the ‘Proxy and appointment of representative form’ – 3 pages with repetition…
in order to maximise voting compliance, would it be possible for Fundhost to post a single webpage?
This is more of question to the other existing members and maybe the Forager team if they wish to weigh in. I tend to think that most members are quite sticky and are in for the long haul and that there also aren’t many institutions on the register. This suggests to me that the ASX listing price is always going to be higher than NTA, as most members don’t want to sell, and if someone wants to get in, they’ll need to pay up. This being the case, and all other things being equal, I suspect that I’m better off investing some more funds now rather than after it lists.
What do other people think ?
(Now that I’ve said this I know that there will be a melt down the day after I invest 🙂 )
Christian, I’ve got the same suspicion, and I am sure over the next couple of weeks Forager will be hit with a number of investors ‘topping up’… Mr Market is funny though, and I’ve seen LICs trade at deep discounts or premiums for no real reason… Quite often the LICs with low liquidity trade at a big discount, so whilst the market cap of Forager may be fairly high, liquidity could be low meaning the market punishes the fund for its lack of liquidity?
This is my key concern as well Christian. I plan on topping up my holding at regular intervals over the next few decades so if the LIT trades at a persistent premium to NTA that wouldn’t be ideal
Hi Steve,
Assuming that the LIT listing goes through, an important piece of information is the NAV of the fund at any point in time, so investors know if it is trading under or above NAV. For example, I personally would be loath to sell if the stock if it is trading at less than NAV and buy if it is over. Currently I can buy and sell knowing that I am getting fair value for my units. Can you provide information on how often you plan to be releasing the status of the underlying NAV once listed? I would suggest weekly.
H i Steve I forgot to ask yesterday.. is yourself or anyone else in the Forager team planning on redeeming any part of their Australia Fund holdings prior to a successful listing and if so why?
Also EGP fund is a private investment company structure…
Thanks Jane
Hi Jane,
I’ll leave Steve and the others to speak for themselves, but that’s a firm ‘no’ from me. I won’t be selling any units before the listing or indeed anytime soon.
Cheers
Well we have considered and thought and thought and read and thought and read and done it all again and for our part we have decided to vote against the listing… simple and unsophisticated thinking maybe, but to us the redeeming/purchase end of our investment being fully exposed to mr market nervousness, the risk of units trading negative to NAV and losing out on potential/probable ability to compound to the maximum, as is the case now, are the persuaders for us… it is not a reflection on you guys as our allegiance has been with you right back to the early IIV days.. we have utmost confidence in your skillset and knowledge and will continue to do so… we have around $400k invested and won’t sell if the listing does go ahead but will sweat a little until the dust settles …. we just don’t believe the listing is in our best interest.. we do support however the original intention to closing of the fund to new cash..
I would have thought the ability to compound your holdings at prices below NAV would be classed as “compounding to the max”.
If it lists and someone really wants to sell units for less than they are worth i’ll be happy to tell them in my best Fry voice “shut up and take my money”
Hi Steve and crew,
I’ve been an active follower of Forager for some time now (not investor yet as can do better in family business while still active and at it, but I hope the day will come when I have some ‘lazy’ dollars to invest), and I reckon this is the way to go because it builds in the opportunity for a market premium and easier buy/sell.
Your investing approach, honesty and significant ‘skin in the game’ I like and it shows with a track record of success which to my mind takes all the stress and worry out of it. Happy to leave it to you guys to deal with all those concerns – only too happy to pay someone to deal with all those market stresses and worries. I would want to just invest and leave it there without having to worry about the short term ups and downs but knowing that invested in good long term businesses.
But I make these comments as an active interested but not yet invested person – so take with the proverbial ‘grain of salt’.
Hi Steve.
There are very insightful comments on here and thank you for taking the time to answer them.
I’m fully supportive of closing the fund. However, did you consider closing the fund to new and additional investments and opening a second fund with the same strategy? An NZ firm by the name of Pie funds have been successful with doing so and no doubt others have too.
What was the rationale behind not taking that path?
Thanks
Shane
Shane, I know your question was directed to Steve, but there are a couple of issues that come to my mind even at a first glance.
Assuming Forager see it as their fiduciary duty to achieve the best results they can for all their investors, the portfolios of the two funds would presumably need to be invested similarly. This leaves them with the same capacity issue which prompted the closure of the Australian Shares Fund in the first place.
Additionally, the operation of a parallel fund, unlisted or not, might remove liquidity from the closed listed fund at the very times you least want it to, and certainly wouldn’t be in the best interests of current investors in the FASF.
I would go so far as to say that if Forager gave any indication of pursuing such a course of action (they haven’t), smart investors might be wise to vote down the listing proposal or take advantage of the redemption window prior to listing.
with reference to RGF view of the LIT:
in the current entity with redemptions available on call, FASF is even more exposed to reducing return on investment with Management having to sell early or worse still be cautious with investment – hence expect a significant reduce return going forward, if unit holders cannot grasp the value of the proposed listing process
Will Rogers once said; “The fellow who can only see a week ahead is always the popular fellow, for he is looking with the crowd. But the one who can see years ahead, he has a telescope but he can’t make anybody believe he has it.”