AVI GLOBAL TRUST
PLC
Monthly Update
AVI Global Trust plc (the "Company")
presents its Update, reporting performance figures for the month
ended 30 April
2024.
This Monthly Newsletter is available
on the Company's website at:
https://www.assetvalueinvestors.com/content/uploads/2024/05/AGT-APR-2024.pdf
Performance Total Return
This investment management report
relates to performance figures to 30 April 2024.
Total Return (£)
|
Month
|
Calendar Yr
to date
|
1Y
|
3Y
|
5Y
|
10Y
|
AGT NAV
|
0.8%
|
6.0%
|
25.4%
|
27.8%
|
72.0%
|
171.3%
|
MSCI ACWI
|
-2.4%
|
6.5%
|
17.9%
|
25.3%
|
63.5%
|
196.4%
|
MSCI ACWI ex US
|
-0.9%
|
4.7%
|
9.7%
|
11.7%
|
33.1%
|
98.2%
|
Manager's Comment
AVI Global Trust (AGT)'s NAV increased +0.8% in
April
Hipgnosis Songs Fund ("SONG") was
the standout performer, adding an estimated +277bps to your
company's NAV. We expand on this further below but we believe such
returns are testament to the value that can be added through
activism, and AVI's positioning in the London-listed closed-end
fund market.
Performance from the rest of the
portfolio was modest in a tougher month for equities. News Corp
cost us -58bps as the discount widened to 42% from 38%, whilst
FEMSA and IAC detracted -39bps and -31bps, respectively.
Hipgnosis Songs Fund
On 18-Apr-24, Concord - a music
rights firm backed by Apollo - announced a binding offer for SONG
at a price of $1.16-$1.18 per share. Blackstone, the majority owner
of Hipgnosis Songs Management (HSM, the Manager of SONG) responded
just two days later with a bid of $1.24. Concord then pipped this
by 1c, followed by Blackstone raising their bid to $1.30. Given
Concord have subsequently confirmed they will not be improving
their offer, it seems highly likely that Blackstone will prevail
with their $1.30 bid which represents a premium of +47% to the
undisturbed share price.
This marks the end of a highly
successful investment for AGT, in which we played a key role
in
fighting off the proposed related-party sale of a portion of SONG's
catalogues and also making the case against the company continuing
in its present form. Resolutions
proposing each matter were heavily defeated at shareholder
meetings. With two directors resigning on the eve of the AGM and
the then-Chairman suffering a resounding vote against his
re-election, we and other shareholders engaged with the remaining
rump to push for the appointment of two new directors - Robert
Naylor and Francis Keeling - who had just stepped down from SONG's
peer company, Round Hill Music Royalty Fund, following its
acquisition by Concord. Both were appointed with Robert immediately
installed as Chairman. Christopher Mills then joined the Board a
month later.
The events and news-flow since then
are beyond the word count constraints of this newsletter but
suffice to say, we are happy with an outcome that has not only
generated a very strong return for AGT's shareholders but has
demonstrated again both the value of shareholder activism and the
critical importance of having the right people on Boards. The new
directors joined the company at a time of crisis and engineered an
excellent outcome for shareholders in a timeframe few would have
felt possible at the time of their appointment. With no viable
future as an ongoing listed vehicle, the key task facing the new
appointees was how best to generate competitive tension in a
situation where, under the terms of the Investment Management
Agreement, the Manager had a call option allowing them to purchase
the portfolio in the event of their termination. The investigatory
work conducted by the Board and their advisors,
some of the fruits of which were made
public, led to an understandable
perception that there existed more than sufficient grounds to
terminate the Manager "for cause", which would invalidate the
option.
We think it likely that this,
alongside other measures introduced by the newly-reconstituted
Board, gave Concord the confidence to make their initial bid and
resulted in a higher price ultimately being achieved for the
company than would otherwise have been the case. We applaud the new
directors' fortitude and shrewd handling of a highly complex
situation.
Princess Private Equity
Our
Aug-23 newsletter discussed (and
praised) Pantheon International ("PIN")'s new capital allocation
policy and associated large share buyback programme, and its wider
implications for the listed private equity and broader alternatives
sectors. We await the finer details of the policy, set to be
announced within the next few weeks, with interest.
One of our other large positions in
the listed private equity sector, Princess Private Equity ("PEY"),
recently followed suit with a clearly defined capital allocation
policy of its own that was met with a warm reception from industry
participants. One prominent sell-side analyst correctly identified
it as "the most structured
capital allocation policy…in the listed PE space" and "reflect[ing]
the inconvenient truth for many managers that buying back shares
when the shares are on wide discounts is likely to be considerably
more accretive for shareholders than making new
investments."[1]
PEY is a London-listed closed-end
fund that offers access to direct private equity investments made
by Partners' Group, the Swiss-listed private capital manager with
$150bn of assets under management. PEY's new policy will see 75% of
free cash flow steered to buybacks when PEY's discount is wider
than 30%; 50% when the discount is between 20% and 30%; and with
the Board emphasising that they reserve the right to buy back
shares at discounts below 20%. This share repurchase programme is
additive to the existing high dividend policy that targets a total
annual pay-out (paid in two semi-annual instalments) equivalent to
5% of the previous year's closing NAV. At the current share price,
this not only represents an attractive yield on share price of 6.7%
but is materially accretive for shareholders given it represents a
return of capital at a zero discount (versus PEY's current 25%
discount). Recognising their importance to shareholders, the
buyback programme ranks behind these dividend payments (i.e., the
free cash flow metric used to determine the allocation to buybacks
is net of dividends).
PEY's dividend yield had helped keep
its discount relatively narrow until cash outflows from their
FX-hedging programme forced a suspension of the dividend in
late-2022. We built our position - reaching a 10% stake - in the
wake of the sell-off that followed, sensing an opportunity to
engage with the Board and Manager to resolve various governance
issues we believed to be the underlying root cause of the dividend
suspension and the botched shareholder communications surrounding
it.
Although the dividend was soon
restored, the then-Chairman and the Partners Group representative
on the Board resigned on the eve of the AGM that followed these
events, thus avoiding their public defenestration at the hands of
shareholders. Following further engagement with the remaining
directors, we were pleased with the appointment of private equity
veteran Peter McKellar as Chairman in Nov-23 and were confident his
vast experience of the listed private equity market would be of
huge benefit to the company. While the new capital allocation
policy is a critically important development (and we also welcome
the strengthening of the Board with further appointments, and the
proposed renaming of the Company to capitalise on the Manager's
profile), there remains more work to be done to better align fees
with shareholder outcomes, improve disclosure, and re-invigorate
investment returns.
As with our investment in SONG
described above, we believe the changes at PEY demonstrate the
value that can be added through shareholder engagement and further
emphasise the importance of a strong Board.
While there are several reported
exit processes under away at some of PEY's larger investments, we
were pleased to see one that had not previously been flagged come
through when it was announced in early-April that the company's
second-largest holding, building products specialist SRS
Distribution, is to be acquired by home improvement behemoth Home
Depot at a valuation almost +30% above where it was carried in
PEY's previous NAV.
Contributors / Detractors (in GBP)
Largest Contributors
|
1- month
contribution
bps
|
% Weight
|
Hipgnosis Songs
|
277
|
8.2
|
Symphony International
Holdings
|
30
|
2.3
|
GCP Infrastructure Inv
|
14
|
2.6
|
Nihon Kohden
|
11
|
2.7
|
Pantheon International
|
9
|
3.8
|
Largest Detractors
|
1- month
contribution
bps
|
% Weight
|
News Corp
|
-58
|
6.6
|
FEMSA
|
-39
|
4.4
|
IAC
|
-31
|
2.8
|
Schibsted ASA 'B'
|
-28
|
4.0
|
KKR
|
-20
|
2.9
|
Link Company Matters Limited
Corporate Secretary
15 May 2024
LEI: 213800QUODCLWWRVI968
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