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Just put in a 7% portfolio position on the Alternative Liquidity fund at $0.13 – henceforth known as ALF…

18/12/2016 ** WARNING – This share has now paid out $0.075c and is trading at more than I bought it for – now it is much less attractive.  I continue to hold.

This is where Hedge funds go to die, its a fund of side pockets and other iliquid investments.  But its got 5c in cash and much of the rest of the NAV should come eventually, NAV is 0.86c per share.  This discount is extreme, if only one or two investments pay off you get your money back at current prices.  I believe the chances of this are very good.

It is a portfolio made of hedge fund assets which have been difficult to liquidate.  These were assets moved to side pockets – investors couldn’t get their money out.  Ultimately They were all packaged up (I believe by Signet asset management) then floated in September 2015 to give holders liquidity.

Unsurprisingly having been stuck in this for 4 years holders were eager to sell out, even though this was floated at 30% of NAV.  The price promptly fell to 8c or just over cash.  (Unfortunately I didn’t see it).

Fees are $1m a year at the holding company level or about 0.79%.  There are then fees at the underlying company level.  In a lot of instances these have been disclosed here.

Most are 1% per year as far as I can see. talking total fee to about 2% per year.  There will be performance fees and fees when holdings are sold.  Still the discount is massive and in a few instances fees have been waived due to the holding’s dismal performance to date…

The NAV’s are going to be looked at again and revised downwards.  I have looked for other funds holding these assets and looked at GLI finance – another trust.  Some of these have been discounted by GLI.  I have tried to come up with my own estimate of what I think the NAV should be.  This is in the attached excel file here.  It also has my notes and my justification of discount assumptions…

I don’t think the NAVs are nuts.  I get to a valuation of $0.66 – quite a way from the stated NAV of $.86, but it isnt crazy.  Discount against my NAV is 80% so still a large upside.

Bulk of the NAV is in Vision Funds – these are Brazilian claims against govt / Electrobas.  As inflation in Brazil is c8.5% and interest on this is apparently at 6%.  Not sure if there is any indexation or the currency, but it is worth bearing in mind that the real value of these assets may diminish in time.  Some of these have already been discounted at the sub-fund level.

There may have been a material event, missed by the market on Friday – it might apply to these funds but I am really not sure if there is any read-across.  If there is lots of opportunity for quick money.  There was a slight rise and tick up in volume on Friday but I dont know if that was related or just me !

Details here: http://af.reuters.com/article/commoditiesNews/idAFL1N1B00FU

In any event it confirms that there is value here – if we get the 10c the Electrobas is in the NAV at we almost double our money.

Other funds are Ukrainian property – a deal was done in mid 2014 which would suggest a discount of 60% vs what it is in the NAV for…

They have said they are realising and will return cash  Was suggested for Q2 but nothing has been announced.  Information in the December factsheet suggests it might be a year or two but sounded confident that the investments would eventually be realised.  They have already approved resolutions to get this done.

They have said they would like more assets to spread the costs.  I’m not particularly in favour of this, as ever I want my money back.

Fund Manager is Morgan Creek Asset management.  They manage $3.7bn and seem to be pretty respectable.

 

Will wait and see what happens.  Possible progress is a drift down to 8c again, at which point things will rise, simply due to cash on the BS.  If / when we get a realisation this could support a rapid re-rating.

Would love to hear what people think…

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