ALF – Net Assets 6X Market Cap, Cash half Market Cap, Potential 5 bag opportunity…

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…

15 thoughts on “ALF – Net Assets 6X Market Cap, Cash half Market Cap, Potential 5 bag opportunity…”

    1. Hi smabolag & Undantag
      If you think about it none of these have been turned into cash, else they would not be assets and there wouldnt be a discount!

      RNS went out after the close today:
      http://pdf.reuters.com/htmlnews/8knews.asp?i=43059c3bf0e37541&u=urn:newsml:reuters.com:20160831:nRSe6147Ia

      Said company has received $2m since the company was launched. At a NAV of 130m (at launch) and an assumed run rate of 3 that means it will take about 40 years to get all the NAV back.

      BUT

      With a market capitalisation of $20.75 and cash (before payment) of $6.0m it takes only 5 years to get your cash back in full – if the $3m a year run rate continues… You then have an asset which is still worth $110m or five times what you paid for it.

      I dont think this will actually happen and actually believe the rate of cash return will increase, but it is the weakest part of my thesis. I really dont know if the cash will be returned or when, neither does anyone else – hence the discount.

      Still the numbers stack up and I have the potential to get a multiple of my initial investment over a few years…

      I should also point out best not to reinvest in this as you run the risk of being left with all the assets which can’t be realised.

      What do you think ?

      1. Hehe, yes. I ment how much cash they received since they started. I guess the easiest assets will be realised first so youre right – might be wise not to reinvest – atleast if they cant reinvest in new assets with high ROIC. Wont be easy to tell thoose apart initially either.Probably high voltility in outcome.Overall i think it sounds like a good bet with limited downside and high potential on the upside 🙂

      2. Yes, they havent started long so it is $2m – apparently the Brazilian court system was on strike – so it should eventually start moving again. Position on reinvestment at a hard ROIC – I am not keen, but if they show they can reinvest at a high ROIC they can lower the discount.

        They have done a little buying back of their own shares in the market then reissuing them in exchange for assets. I’m more in favour of this as a way of expanding.

        Hope you invest and it works out well for us both…

  1. Thanks for the intresting ideas btw. Got a couple of more U.K net-nets. Hargreaves and Global energy development. Both looking good in my view. And Judge Scientific seems like a quality company at a decent price as well. Looked into thoose?

      1. CAMP might be a value trap. They have rented out their camping cabins to immegrants last couple of years to raise off season occupancy. The gov. rules for renting has changed though so CAMP wont be able to capitalize on that any more. I like Solteq, Tikspac, Protector forsikring, TGS Nopec, Spectrum, Will Willhemsson, Treasure ASSA and Byggma here atm.

  2. Interims were out last week. NAV approx 75 cents and they have about 4.5 cents net cash. They are not planning to mke another distribution until they make another disposal.

    One thing that caught my eye is that annualised running costs, including management fee, have risen to about 1 cents per share. That’s a 50% increase. The management fee is 0.75% of NAV which of course does not incentivise the management to write-down the value of any investments.

    I still hold though. I’m reasonably confident the published NAV is a realistic ball-park figure.

  3. OK that’s another 3 cents returned. Obviously the Vision investments are going to be key here. The Ubique property investment (Ukranian flats) also since it’s 20%.

    I’m struggling to find value elsewhere now. (but DCI looks interesting again?)So as an aside what are people doing with their cash just now. Im 80% cash just now and the best I can come up with is an online savings account with 1% interest or premium bonds.

    1. I’m struggling to find places for cash to be honest.
      I really think KMG is a decent bet.
      https://deepvalueinvestments.wordpress.com/2017/09/30/kazmunai-gas-minority-stake-trading-at-near-cash-value-likely-to-realise-soon/

      Obviously not one you can put huge capital in.

      Really not sure on DCI. I need to have another look.

      I have a lot of cash coming back from RMA that needs a home…

      Dont want to post too much about what I am looking at – I will when I’ve gotten my money in. Im going to spend some quality time on the Bloomberg looking for good stuff…

      I have money in TJI waiting to come back too – might be worth a look if you dont have any – but you’ve missed the easy money.

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