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I have recently (Dec 13) created a position in Symphony International Holdings.  I bought at 74-75c per share.  7% Weight in my portfolio – which for me is medium – not the biggest position but far from the smallest.

This is something of an oddity.  It is a London-listed fund which purports to be a private equity fund.  In fact c76% of its portfolio is in listed Asian equities and cash.

It is trading at 76.5c per share (3/1/14).

I believe this is interesting as fundamentally it is an investment trust trading at a discount to NAV of approximately 45%.

This of course does not necessarily make it a good investment – its underlying holdings could be horrendous, but the odds are stacked in my favour from the get-go.

So why the discount?  I believe it is largely due to fees – and an excessively well paid management.  The management fee is 2.25% – at least $8m and at most $15m – pricey when all the investors seem to be doing is sitting on a few listed stocks.  Of course this is not enough for them – they also have management shares they are being issued as well as options.  Whilst annoying this isn’t enough to substantially dilute me.  There are also a large number of options (165m) with an exercise price of $1.00 – shouldn’t be too unachievable with a NAV in the region of $1.30.

The company also had a rights issue in September 2012 for $100m.  The cash appears to still be sitting on the balance sheet.

So onto the holdings:

Minor International Public Company – very large Thai Restaurant and Hotel owner – c32% of SIH NAV.  This is the holding which troubles me the most – it has a PE of 24 although it has been growing very fast.  Interest is covered 5.1X by earnings.  In my worst case I have assumed this falls to a third of its current value.

Parkway Life – Healthcare in Singapore – 10% of NAV on the face of it a good investment – 31.2% gearing PE of 11.  In my worst case I assume this halves in value.

IHH Healthcare Bernhard – Malaysia Healthcare – 10% of NAV , PE of 25-50 depending on the earnings you want to look at.  Again In my worst case I assume this halves.

Other holdings – Again excluding cash I assume they halve in my worst case.

This gives me a worst case NAV of 75c per share – similar to the current price.  Of course if the holdings fall substantially and the discount is maintained then I will loose more than this – but I would argue that this level of discount should not be maintained.

The directors seem to agree with me.  They have been buying hundreds of thousands of shares over the past few months.

The company itself states that the value of listed holdings plus cash equals $1 per share.

As to shareholders – Anil Thadani (Chairman) c10%)

British Empire securities 7.05%

Asset Value Investors  10.42%

Plenty of room for a hedge fund to come in, sack management and realise value.  If not, in the 2012 annual report management stated that if the discount is >35% in the three months to September 2017 the directors intend to distribute 80% of the NAV. (p16).

The details of the investment management agreement are unknown (I asked for this but received no reply).

So any comments ?

Please note none of the above should be regarded as investment advice.  It may be inappropriate for your risk tolerances / preferences.  You should do your own research.  If you are unable to do this you should consult a qualified individual.

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