By Hedge Fund Insight staff
The Board of Listed fund of hedge funds Altin AG is under pressure to change the composition of the Board and to pay out a special dividend from retained earnings. The existing Board has done a good job post Credit Crunch, as these extracts from the EGM Statement show:
“(ALTIN launched in December 1996 and) over this period ALTIN has delivered an annualised NAV performance of over 6% and its shares have appreciated by +189.6%, outperforming both equities and bonds. In particular ALTIN has delivered a very attractive risk adjusted performance relative to global equities.
Since its inception ALTIN has experienced a number of challenging periods, most notably the 2008 crisis that has left such a heavy mark on the hedge fund industry as a whole. Although ALTIN did not emerge from this crisis unscathed, investors were never subjected to the gates or side pockets that plagued the hedge fund industry. This is down, first and foremost, to ALTIN’s permanent capital structure and, secondly, to the manager having judiciously avoided frauds and the more opaque or leveraged hedge fund strategies that resulted in large proportions of investors’ capital being wiped out.
The four years between 2008 and 2012 were the most difficult in ALTIN’s history. The Board recognised that performance needed improving and that the discount to NAV, which had remained stubbornly above 30%, had to be vigorously addressed. Discounts to net asset values of this magnitude are usually associated with hard to value assets, impaired balance sheets or investments that are extremely difficult to realise. In ALTIN’s case, none of these potential issues were relevant, as less than 2% of its portfolio could be classified as being distressed or difficult to realise. The discount was therefore, in the Board’s opinion, down to medium-term performance issues and the need for a clearer strategy on discount management. It is in this spirit that in early 2013, the Directors of ALTIN concluded to further increase the independent oversight and proposed the appointment of Mr Roger Rüegg, as an independent Director, who is an expert in alternative investments and fund governance. A further measure was to hire a totally independent CEO, Mr Tony Morrongiello, to implement and steer strategic issues, most notably the discount management policy. Simultaneously, the investment manager undertook a substantial review of the portfolio, which was completed by early 2013. The portfolio was refocused to take advantage of the permanent capital base and with a more bottom up and long term investment profile. Last but not least, ALTIN introduced a discount management policy, which has been instrumental in reducing the discount by over 50%.
Over the last three years, since the Board of Directors and the new CEO embarked on these strategic changes, the shares have risen by over +40%, fuelled by a +12% rise in NAV and a halving of the discount. The shares have outperformed the MSCI World index by 25% and the NAV has beaten the HFRI Hedge Fund index by 7% (percentage point difference, respectively).
Although we are pleased with these results, investors should rest assured that the Board and the management do not consider that this is mission accomplished, as there is still work to be done to rein in the discount on a sustainable long term basis and to improve the liquidity in the underlying shares, as well as ensuring that the manager continues to deliver on the long term performance target.
We have made considerable efforts over the last couple of years to re-establish ALTIN’s presence in the UK market, where it had over 30% of its shareholders, and which coincided with a period when the shares were trading at a premium to NAV. In early 2015, we appointed Cantor Fitzgerald as our UK brokers and Marten & Co as our providers of sponsored research and investor marketing support. Management conducted a number of road shows in the UK during the course of 2015 and we are pleased to report that we are seeing a growing interest and a developing UK investor base. ALTIN’s management has every confidence that the UK market holds great promise, especially at a difficult time for equity markets, which is exactly when ALTIN is proving its worth: since equity markets peaked in the summer of 2015, the MSCI World index has fallen by over 15% whilst ALTIN shares have remained largely stable. More noteworthy is the fact that, in January 2016, whilst equity markets have had the worst start to the year since the Great Depression, ALTIN has delivered a stable performance. We are therefore convinced that ALTIN is continuing to deliver value to its shareholders and will do so in the future.
The Board reiterates its long-term commitment to narrowing and stabilising the discount to NAV.
In 2013, when the shares were trading at a discount of over 30% to NAV the Board introduced a discount management policy that was underpinned by two key principles, namely:
1. ALTIN is an absolute return vehicle and over the medium term, the share price should appreciate in line with the historically achieved NAV performance of 6% per annum.
2. During periods when ALTIN might trade at a wide discount to NAV, investors should be able to count on two drivers of share price performance: the returns from the underlying hedge fund portfolio (6%) and a proportion of the discount, as this should be narrowing over time.
On this basis, the Board made a clear commitment that whilst the discount remained elevated, it would buy back capital if in any calendar year the share price did not appreciate by at least 10%. In 2013 the Board had already conducted a 10% capital buy back and a further 10% of capital was repurchased in early 2015 as the shares in 2014 had only appreciated by 8.6% (on the back of a 6% performance in NAV), thereby missing the stated 10% target. Noteworthy is the +11.4% share price performance (SIX) of 2015 which represents a substantial outperformance to equity benchmarks.
Over the last three years the Board has therefore bought back 20% of the capital in a very efficient manner, that at the same time allowed investors to sell shares back to ALTIN at a premium to the prevailing share price and also boosted NAV as the shares were bought at a discount to NAV.
The Board takes this opportunity to reassure investors that the current discount management policy remains firmly in place for 2016 and beyond if the discount should remain in double-digit territory. We also understand that as the discount narrows and hopefully disappears, it will be very important to introduce a slightly revised policy, with the objective of preventing a persistently wide discount from recurring.”
There are good reasons why there are few Listed funds of hedge funds. There used to be a more, but indifferent performance and wide discounts took their toll, and most have been de-Listed, wound up or been subject to M&A. These days institutional investors and individual investors can get access to hedge fund strategies in better, more liquid, forms. ALTIN AG may be an anomaly, but it’s Board has conducted its oversight well in recent years. Given the success of the changes to fund strategy, and the realisation of a narrower discount the existing Board of ALTIN AG deserves support from shareholders.
Update 2 of “How Many Hedge Funds in a Fund of Funds” (July 2015)
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