LIC & LIT Listed Investment Companies (LICs) Q2 2018

LOL.

I imagine with Evans & Dixon involved a decent chunk may have gone to Dixon Advisory clients. Good old vertical integration in operation.

Then again SOL and related parties may have grabbed a heap to avoid any embarrassment from low take up by others of the offer.

Alternatively there were a number of other silly senile types like me who don’t know what they’re doing and can’t count zeroes.

 

I was having a quiet chuckle over SOL's involvement. Its holding in BKI attracts the MER I assume and through its 20% holding in Contact gets some of it back. Bliss on a stick is one way of looking at it.

 

Fear not Mr Zilla! Bell Potter is training a new person to work on them as the previous employee has left. The reports will return!

 

Checked my CommSec Account today Monday, June 25 and have received both my Entitlement Offer and Shortfall Offer; now holding a fair swag of BKI.

 

Same here,so glad Nodrog left some for the rest of us

 

I got all the offers (shortfall and entitlement) into my account today. Waiting for next SPP announcement from old boring LIC's.

 

Calling young Mr @dunno. Hope this helps but I’m sure you will be digging further.

ALL WHF (Whitefield) OWNERS WILL FIND THIS OF IMPORTANCE.

I contacted Angus G at WHF to try to get some answers to @dunno ‘s questions / thoughts / calculations etc. Here’s Angus’s response, true gentleman as usual:

 

@SatayKing here’s the announcement on SOL’s change of substantial holding in BKI. Reduced ownership overall after capital raising:

https://www.asx.com.au/asxpdf/20180626/pdf/43w1p4y0lgcq68.pdf

 

URB.....URRGGGGGHHHHH more like it. Spotted below on HC by user Volf ;

The likely reason for the discount to NTA, under performance and under subscription at IPO was that this investment vehicle is a fee machine that makes it very difficult for investors to outperform.

You are essentially investing in a typical LIC that unimaginatively invests half the funds in listed property players and charges active fund manager fees of 0.5% base fee and a 15% performance fee over an 8% hurdle. The other half of the funds is invested into direct property investments that still incurs the previously mentioned fees but also incurs the below additional fees.

Any institutional player or high net worth would not touch this vehicle and could get the same exposure without the double overlay of fees. The fee structure is actually quite sickening and unfortunately there's a 10 year management agreement. Another example of retail shareholders getting abused.

Investment Manager Fees:

- Base Fee = 0.5% of Total Assets
- Performance Fee = 15% of performance over a 8% hurdle

Additional Fees to the above:

Direct Property Assets that are Passive:
- Base Fee = 0.75% of Gross Asset Value (Including Debt)
- Performance Fee = 20% of performance over 8% hurdle

Direct Property Assets that are Active/Development phase:
- Project Management Fee = 5% of development costs
- Performance Fee = 30% of performance over an 8% hurdle and 50% performance over an 14% hurdle

All Direct Property Assets
- Purchase Fee = 0.75% of purchase price of the property
- Leasing Fees = not clear what they charge for this
- Debt Fee = 0.45% of debt raised ( would likely be incurred every 3 years with each new debt facility)

BKI holders keep an eye out

 

Yes for those evil villains known as Bogleheads.

Agree about URB = yuck though.

 

Hi @Nodrog.

That is awesome that WHF responded to you. Did they by any chance give you the spreadsheet data that underlies their charts.

Having the data and calculations they are using would make their return chart assumptions unambiguous and I could avoid potentially misinterpreting their narrative as I try to reconcile why their depiction of performance is different to what I get from using Morningstar Datanalysis data to provide what I want to know as an investor – Actual shareholder cashflow experience.

I will respond progressively to the WHF response you have quoted as I get some free time (rainy days)


Cheers.

 

No didn’t request spreadsheet data. I thought Angus was more than generous enough with his time so didn’t want to be too much of a pain. However I find it difficult to believe they would use incorrect data. There’s been a couple of times now some of the charts I’ve seen you post here based on Morningstar data looked strange and didn’t seem correct?

You could try contacting them yourself if it’s important to you.

Over the years I’ve found the older LICs excellent when one has questions and it often surprises me the level of the person you get to speak to. Unlike a lot of the new breed LICs I’ve always felt the older ones were genuinely run for the benefit of shareholders rather than the other way around.

 

From WHF's respnse to Nodrog

"Operating Expense Ratio

The costs of running a LIC are incurred on the total operations of the company, not just that part of the company represented by ordinary shares.

Preference share capital is subject to the same listing fees, share registry charges, reporting costs, audit, prudential control and management as ordinary shares.

Hence an OER or MER is correctly determined by comparing total expenses to total operations (representing capital from both ordinary and preference shares)."

Under the above definition of ‘correctly determined’ operating expense ratios are lowered by increasing leverage.

Debt holders and preference shareholders have preferential ‘fixed’ claims on profits - the level of operating expenses does not change their claims.

An ordinary share holder has a residual claim on profits after expenses hence they bear all the impact of costs. As a shareholder I want to know what expenses have been incurred on my behalf as a percentage of my claim on assets. (or even more informatively as a percentage on my claim of profit)

Expenses stated on an operational assets basis tells me nothing about what percentage of expenses I bear on my assets unless I also know the amount of leverage and do a calculation to remove the impact of the financial structure on the expense ratio.

What I as an ordinary shareholder want management to simply tell me without having to dig into the report is what percentage of expenses I bear as a percentage of assets I own. NTA is used widely to describe the assets I own in a LIC – I think it would be much more consistent, instructive and comparable between funds for expenses to be expressed in terms of NTA instead of expressing it in terms of operational assets.

I'm not sure who WHF refers to as decreeing 'correctly determined' but I would make the same shareholder perspective response to them.

 

Most intriguing. If I read it correctly SOL took up only it's Entitlement. I'm a bit surprised.

 

Yes me too. It looks like the success of the capital raising was mostly down to me. Anyone want to buy some?

 

@dunno I do enjoy reading this deep analysis but I think it can get to the point of verging on paranoia. Which ever way you look at it, fee wise WHF as a relatively small LIC appears to be very much on the low side. From memory WHF NTA accumulation performance over 5 and 10 years has outperformed the ASX 200 accum Index? Not that I care as it’s dividends accompanied by NTA growth that matters to me. Add to that the opportunity of excellent discount buying at times.

I’ve held WHF for a veeeerrryyy long time and there’s been nothing to suggest that Gluskie and Co are out to deceive shareholders.

These are simple investments for simple investors (me, verging on braindead, in particular) so perhaps that’s why they appeal to me.

Other long term shareholders of WHF like @SatayKing might wish to share their view. Not advice, just their experience.

 

Nuf said from me.

 

That’s kind of how I felt too.
I know I put in $x. And at the end of the year it paid me $y

Could I have got $y +2% putting my money somewhere else? Maybe, but I didn’t know that at the time.

All too hard for me.

Blacky

 

But don’t get me wrong. Very interesting discussion and analysis.
Keep it coming!

 

I agree with you but this is all way too “in the weeds” for most. If I had the interest I would also take issue with a couple of Mr Gluskie’s points but in the grand scheme of things it’s not really a service to members here who just want to get things largely right. Those that want to go deeper, for better or worse will do so and have their own opinions.

I am absolutely with you that most overlook agency risk, perhaps willingly - and how cleverly management will play the game.....from an operating business perspective I know very well how this works. There are always competing interests, owner and agent no matter how much the latter would like the former to believe otherwise.