At a ~35 discount you are being given a huge margin of safety even if valuations were off the mark. However I actually think you can assume the valuations done by the manager/board are fairly reliable. First off cash is cash. Straight away that accounts for 25% of the NTA being accurate. Secondly if you are a new manager coming in, your chance to get all the skeletons out of the closet is now. You would pressure the board downgrade the valuations to a more appropriate price and the blame the even bigger resulting discount on Bluesky. Setting yourself up to be the heroic saviour. There is nothing to gain for the board or incoming manager to hold up valuations that were inflated, which is why I think it is a high probability that valuations are not too far off the mark.

Just to briefly (ha!!) add to the comments on BAF asset valuations. Since GVF's Miles Staude joined the BAF board, I have noticed an increased focus on more regular independent valuations of BAF's various assets. Additionally, they had EY (Ernst & Young) as auditors (since the inception of the fund), who are top tier auditors, and they (BAF) have just changed auditors (see 29-May-2020 announcement) to Pitcher Partners (Sydney), who are also first rate auditors, having been doing this stuff for 100 years - see here: https://www.pitcher.com.au/locations/sydney In that 29-May-2020 announcement, the BAF Board said, "This appointment follows the outcome of an audit tender process undertaken by the Directors. In accordance with this process and section 329(5) of the Corporations Act 2001 (Cth), the Company has received the resignation of Ernst & Young and ASIC’s consent to the resignation. The Board believes that the appointment of Pitcher Partners is in the best interests of the Company and its shareholders. The change will also result in the alignment of auditors with proposed new manager of the Company, Wilson Asset Management (International) Pty Limited to be appointed subject to shareholder approval." So, WAM Funds also uses and trusts Pitcher Partners, and seeing as BAF is about to become WAM Funds' 7th managed LIC, they would want to use their current auditors (Pitcher Partners) for ALL 7 of those LICs. But back to those individual valuations. In BAF's 14-May-2020 April NTA Report announcement, they said, "The majority of non-Agricultural investments within the portfolio either directly or indirectly remain exposed to the consequences of the pandemic. Significant adjustments were brought to account in the March quarter. At this stage, no portfolio company has required emergency funding. The portfolio will be subject to a comprehensive external validation of asset values over the next quarter as part of the year end audit process." Note that they use the words "comprehensive" and "external" in relation to upcoming asset values validation. On 14-Apr-2020, in their March NTA Report, the GVF Board said the following: "The impending pandemic-generated global recession could be one of the deepest but also (hopefully) one of the shortest recessions. "In the midst of this crisis, it is useful to go back to the basics of what the Alternatives Fund was set up to do: invest in a diversified portfolio of alternative assets. Investing in alternatives has the potential to enhance the risk/return characteristics of investment portfolios by increasing diversification and reducing overall volatility (given low correlation to more traditional asset classes such as listed equities or fixed interest). This is a time that stress-tests that investment strategy. "You will probably have an initial reaction of surprise when you read the NTA report and find that the value of the portfolio has only been marked down by less than 2%. Please note that while investment markets are suffering the adverse impacts of the pandemic, at the end of March, over 57% of your Alternatives Fund’s portfolio is in cash (25.4%) and Water Fund investments (32.1% on an aggregated basis). This is serving you well in the current crisis. The Agricultural and Water investments within the portfolio (approximately 42% of the overall portfolio) have felt little to no impact to date, with Water having a strong month. Demand for farm produce has not fallen, and all of the export channels remain open. "The portfolio also has a number of unhedged investments across the broader portfolio, in particular investments into the US (esVolta, Cove). These were insulated to a degree by the 13% or so fall in the Australian dollar over the last quarter (6% fall in March). "However, there are certainly significant negative impacts in the other parts of the portfolio, and the portfolio managers and the Board have been taking action to mark down carrying values as a result. "Following the asset review, the Board confirms that the pre-tax NTA of the Alternatives Fund decreased by 1.94 cents per share, or 1.73%, to $1.1033 per share in March. "The decrease was the result of a combination of manager valuation adjustments as well as additional provisions introduced by the Board. The Growth Capital and Venture Capital portfolios (comprising 26% of the overall portfolio) were most significantly impacted, with investments adjusted anywhere between 0% and 37% downward. The expected outlook remains wide-ranging from severe to neutral and in some instances positive. Healthcare and consumer staple exposures are obvious examples of sectors that have held up comparatively well." They are constantly looking at all of their asset valuations, and marking them down as appropriate. Pages 14 to 19 of their 25-Feb-2020 Appendix 4D and Interim Financial Report deals with "Fair Value Measurement". Just one example: "the fair value of water entitlements traded by the Water Fund is determined using quoted market prices or broker quotes for similar instruments." [page 14] See here: https://www.asx.com.au/asxpdf/20200225/pdf/44ff363cz5lg93.pdf In addition to those measures, we have the GVF Board organising external third party valuations of some assets, and we have the NEW auditors (Pitcher Partners) about to conduct a "comprehensive external validation of asset values over the next quarter as part of the year end audit process" (as I've already mentioned). Also, on top of ALL of that, we have the DD (due diligence) performed by substantial and other major shareholders which include CS Third Nominees Pty Ltd who currently hold 5.44% of BAF and have been on the top 20 shareholders lists of a wide variety of companies at various times including EOS, NTD, EGI, and ING. BAF also have BNP Paribas and HSBC on their register. Miles Staude's Global Value Fund (ASX: GVF) listed BAF as GVF's 5th largest position as at April 30th (5.5% of GVF) just behind Ellerston Global Investments (ASX: EGI) at 5.6% of GVF. GVF has Geoff Wilson and Chris Cuffe on their board, as well as Miles, and Miles is also on the BAF board. Geoff Wilson is also clearly happy to take over the management of BAF and rename the fund as "WAM Alternative Assets", as has been already announced. I don't think Geoff would be prepared to take the fund on if he thought it was a "black box" or "mystery box". He is happy with the valuations they have adopted. Geoff has already recruited Andrew Siew to run the fund. Geoff said in December 2018 that Adrian Siew had 22 years’ experience in investment markets, specialising in private equity and alternative assets, and he would be the manager of the underlying BAF investment portfolio and would also be appointed to the BAF board. He added that Andy Smith would also be appointed to the investment committee, and would be responsible for the oversight of the investment portfolio of BAF. Smith has over 30 years’ direct experience in alternative asset investment markets, and previously worked as a strategic advisor in alternative assets, private equity and private debt for Sovereign Wealth Funds. You can read more on that here: https://investmentcentre.moneymanagement.com.au/news/10081/wam-confirms-baf-proposal-announces-future-appointments And here: https://www.eurekareport.com.au/investment-news/are-blue-skys-clouds-parting/146613 I'll try to reproduce that Eureka interview below, because the interviewee, Michael Cottier, the Chairman of BAF, does discuss why investors CAN trust the valuation process, and the interviewer, Alan Kohler, as a BAF investor himself, has a personal interest in gaining a better understanding of such issues: Are Blue Sky's clouds parting? Alan Kohler speaks with Michael Cottier, the Chairman of Blue Sky Alternatives Access Fund about the fund's management contract transferal. By Alan Kohler on 14 Jan 2020 Today I'm speaking with Michael Cottier, who is the Chairman of Blue Sky Alternatives Access Fund (BAF), which is the LIC that was started and created by Blue Sky Alternative Investments which went broke. But BAF, as it is, continues and they’ve been for a while now, in the process of transferring the management contract for the fund from Blue Sky in receivership to Wilson Asset Management and they’re now in the final stages of doing that. So, I thought it’d be a good idea now to just talk to Michael about where that’s at. Obviously, the problem for BAF investors, which includes yours truly – I have a conflict of interest to some extent in this or I have an interest in it as an investor in BAF myself. Obviously, we’ve got a lot of attention focused on whether the discount that currently exists to NTA in BAF of about 20 per cent or a bit more, will close. Because the discount exists because of the receivership of Blue Sky and if Wilson’s running of it maybe means it’ll go back to being equal to NTA or possibly even a premium, which is what WAM Capital, the main Wilson LIC, is trading at a premium of 22 per cent. Goodness me, maybe there’s a bit of upside there in BAF. There’s a number of questions to be asked about that process, where it’s at, but also the assets of BAF. What do they own? Who runs those assets? And what sort of freedom will Wilson have, because previously it was a two-way exclusivity arrangement between BAF and Blue Sky (BLA) in that all the assets had to be run by BLA, but in fact in the future that isn’t the case. There’s a lot to unpick with Michael, so here’s Michael Cottier, the Chairman of Blue Sky Alternatives Access Fund. You put out a market update in November, nothing since. But the update in November said you had made a significant breakthrough – I think that’s what you called it, a significant breakthrough for BAF shareholders. I take it or I presume that that was the impending transfer of the contract to run the fund to Wilson Asset Management, is that right? That’s right. That was all happening at the eve of the AGM and we’ve been negotiating – I think you know this back-story pretty well. We’ve been negotiating with, first, Blue Sky, and in recent times, KordaMentha and Oak Tree to try and effect this transfer of the management rights to Wilson Asset Management. That announcement and the breakthrough was really that we’d got to a heads of agreement kind of level of terms and that was the basis for that announcement and that was on the morning of the AGM. Since then, we’ve run up to the Christmas break but we’ve had significant activity kind of translating that into legal documents. They’re still not there and we’ve still got some negotiating to do and we certainly have resumed that to a small extent and this week we’ll see things pick up more significantly. So that’s where things are at. And there’s the contract between you and Wilson, is that what we’re talking about? Because I presume that there’s complication in the transferral. I presume what we’re having is a transfer of management rights from BSAAF, which is a subsidiary of Blue Sky Alternative Investments, to Wilson. Then also, there’s a contract between BAF and Wilson, which is the actual management contract, is that right? That’s basically right. We have, at the moment, what we often describe as a double exclusive arrangement with Blue Sky. There’s only one manager, which is BSAAF as you said, rightly, and all of the investments have been managed by Blue Sky teams. We actually have to effect a termination of that agreement and we have to basically enter into arrangements given the receivership which involves us dealing with both KordaMentha and Oak Tree. And then, you’re right, the go-forward management will be between BAF, the LIC, and Wilson Asset Management, or whichever WAM entities end up being on that final document. I’m very surprised that the receivership and change of control did not represent a termination event for the management contract. No, it did not, and that was largely because of the receivership was of BLA, the head stock, and the way the documentation was put together, that did not automatically lead to a change at the subsidiary level. So, BSAAF, the manager of BAF, is a subsidiary of BLA. The receivership was, if you like, quarantined at the BLA level, which just again made things more difficult for us. I would call that a flaw in the contract documentation and I’d kick some lawyer’s bum for that! Well, [Laughs], in hindsight that’s a good observation and the original documents were put together back in 2014, which was before my time. But I’m not trying to sort of skip or get away from your observation, I think that’s right, it is a very tight and very hard to break arrangement and given the woes that have taken place with Blue Sky, it’s just made it that more difficult for my board on behalf of our shareholders to reposition this thing. Are the receivers demanding cash for the transfer? It is certainly part of the commercial negotiations that there is a cash amount that was originally described to reimburse expenses. That is one of the things that’s still being finetuned in the discussions, both the amount that’s going to be paid and the terms around that amount. Again, as I mentioned, Alan, one of the things that will get reactivated this week will be picking up on those discussions and that’s a particular focus for Geoff at WAM and to discuss that with both KordaMentha and Oak Tree. This is a minor matter, but is the plan that the LIC’s name will be changed when it comes under Wilson’s control? We will be taking the opportunity to remove the Blue Sky brand, Alan, so it will be called something like ‘WAM Alternative Assets’. That’s the current working title – and we’ll have to get an ASX ticker organised as well. I can look this up of course, but what’s the standard discount to NTA of the WAM LICs? I think they vary. I haven’t got that information to make an accurate comment about it, but I think there’s plenty of press about the WAM LICs and I think some of them trade at a discount and some at a premium. I think the important thing to note is, this is, I guess, a new sector for Geoff’s group and we have gone public with the fact that he has recruited Adrian Siew as a portfolio manager with extensive private equity experience and Adrian will be, along with Geoff and the investment committee will be playing a key role in taking over the new portfolio. Well, I can tell you that the WAM Capital LIC trades at a premium of 22 per cent at the moment and that’s about the opposite of BAF, which is at a discount of about 22 per cent, isn’t it? It is, and we’re not happy about that continuing discount. We did put out an announcement just before the one you referred to about the breakthrough, which tried to address that discount to NTA and the components and the drivers, and I think from memory, Alan, we were trading at a discount of between 20 and upwards of into the 30s discount to NTA during the second half of last calendar year. That’s improved slightly, may have had something to do with our ASX release or whatever the other wisdom of the shareholders might be, but it’s traded closer to a 20 per cent or low-20s discount to NTA. Which is still not great and it’s also hard for us to – when you look at the portfolio and the efforts that the board and management have been through to make the valuation process as robust as possible, with the valuer rotations and valuation updates, but we still have that discount. I think there will be people wiser than me who can put an interpretation on that but I’m sure part of it, no doubt, is the ongoing uncertainty about the future of the management of the company. I also imagine part of it is to do with what you’ve described as the double exclusivity, which is that Blue Sky has the exclusive rights to manage your assets. The question I guess is, once the management contract transfers to Wilson, will Geoff Wilson’s team have more freedom than that or will that exclusivity continue? It won’t continue. The first part of answering that question is, there will be a transition period and because of the nature of the run-off of the existing portfolio, this is not like a listed equity portfolio where you can sort of reset it in 24 hours. To maximise value, for example, the growth capital, venture capital and agricultural assets, they all have business cases which involve longer holding periods and we’re certainly not interested in fire sales that don’t maximise outcomes for investors and our shareholders in particular. There will be a run-off approach to the existing portfolio, but looking forward with WAM taking over the portfolio, it will not be an exclusive manager approach, it’ll be a best of breed manager of managers approach. We are looking to build manager diversification into the new model and also to broaden the nature of the portfolio. For example – again, I think we’ve put this in our presentations – the nature of the type of alternative assets that BAF invests in, we would intend to broaden that to include things like private debt and infrastructure, compared to the kind of narrower nature of the Blue Sky managed portfolio. I get what you’re saying about some of those assets that you’ve got, they’re not liquid, you can’t switch out of them quickly. But there is 25 per cent of the portfolio in cash at the moment, so there is some work for Geoff Wilson’s team to do in investing that cash, I guess. Absolutely. Again, we’re looking forward to getting this all resolved so that that cash can be deployed, because we clearly have a cash drag effect on the portfolio at the moment, so again, we have put out a stop on deployment of capital into Blue Sky, but we are very open to and welcome to getting that cash working under WAM’s management. There’s 25 per cent roughly in what’s called the Argyle Water Fund, which used to be the Blue Sky Water Fund. There’s another 11 per cent or 12 per cent in something called the strategic agricultural fund; 20 per cent in growth capital; 6.5 per cent venture capital. These are all Blue Sky funds – can you just tell us what’s going on there? Because Kim Morison, who was the interim CEO at Blue Sky, did a management buy-out. He called his new firm Argyle Capital, but Oak Tree’s involved, which is this global fund. It’s now 62 per cent owned by Brooksfield, I think. Who runs those funds now? I mean, whose funds are they? Is it Kim Morison or Oak Tree or what..? I think it’s a bit of both. Again, you should talk to people like Kim directly to get the full run down on that. But certainly what’s happened, Alan – and this has also made our process more complicated or more fragmented because we’ve sort of had teams splitting off into these new teams. You’ve correctly identified Argyle as the new real asset, team, which is still run by Kim Morison. But that has also happened in a parallel process with the growth capital team. That is now called Fortitude Investment Partners and the venture capital team is now called January Capital. They are all, as I understand it, management buyouts with majority management ownership and also Oak Tree taking minority positions in those entities. Who’s running them? Just from memory, Ben Dunphy, is now heading up January capital. All these gentlemen are ex-Blue Sky. Nick Dignam is heading up Fortitude, which is the growth capital vehicle, and Kim Morison as you said, Argyle. I’ll just pause there. Right, and each of them is backed by Oak tree? That’s my understanding, yes. You would think the January and Fortitude structure is similar to the Argyle one. All those funds have been pulled out of the entity that’s in receivership, is that right? Yes. I think, again, the full legal implications of that may still be worked through. I think there’s probably a transition phase that’s still occurring, but the statement you made, Alan, is right. They have pulled those out of BLA and they’re now sitting under the Oak Tree business. And obviously, all this is relevant because these funds represent your NTA, which at November 30th was $1.12-$1.13. The question I suppose is how did you arrive at that? I mean, what’s the process for determining that NTA? Well, we still have a management company, BSAAF, which is the manager of BAF. We are still having all of the same processes around our monthly board meetings. The valuation policies and methodologies are as previously announced, so we still go through that process and in fact, we will be announcing in December, end-December NTA, I’m expecting that will be tomorrow morning. That’s kind of business as usual. The thing I would like to highlight though is, given all the concerns about the discount to NTA, the board has been very focused on making sure our valuation processes are as robust as possible and again, I’ll just point you to our recent ASX announcements where we’ve talked about those valuations and the valuation processes. I’m not sure if I’m answering your question. We can all go and read those things, but maybe you could just take us through – I mean, how deep into the funds do you go to determine the value of your investment in the funds? Do you value or are you kind of on top of the valuation of each of the assets within each of the funds. Yes, we are. Again, we have independent valuations or valuation reviews that are used as input to the board in basically arriving at our NTA. We obviously rely on information and determinations via the manager or, as we were discussing with these fragmentations under Oak Tree, the relevant managers. We still have reports coming into the board from those managers. We have the same investor information that’s available to other underlying investors in the fund, so we certainly use that information. But a key to the process is the at-least annual valuation process, independent valuation review process that is carried out and we have had full coverage of the portfolio across the last 12 months of every fund and that has resulted in some fairly significant adjustments to carrying values. I think there is a robust process. I realise this is, given the nature of the assets, a key issue for investors and for their confidence in the portfolio but I just want to assure you that the board takes their responsibilities very seriously around the valuations and the other piece which is less frequent is we have the annual audit and the half-year review which is still carried out by Ernst & Young. Obviously, the manager makes the decisions about what to invest in, although who knows how the process actually worked when it was running at Blue Sky, but clearly a quarter of your money or the largest investment is in water. Can I ask you, what do you think of water as an investment, do you think it’s a good investment? It's an investment that’s performed very well. I think again there’s a lot of interest in water funds and water investments, questions about will there be regulatory changes to water rights and how they are handled. Alan, I’m not a subject matter expert in water investments but I think the outlook, as I see it for the Argyle water fund remains positive and I think whether there’s going to be regulatory changes – I’m probably just reciting some material that Kim Morison has provided, but I think there is confidence that there won’t be regulatory changes to the way the Murray Darling and other relevant water markets are regulated. But we’ll have to wait and see on that one. Can you tell us what sort of return the water fund has provided to BAF over the years? I don’t have that in front of me, Alan. I’d be happy to send you a quick note, but it has been very positive. But your sense is it’s been a good investment? It’s been one of the best in the portfolio, without question. And you’ve got no reason to think it’s not going to be any good in the future and that Wilson will sort of pull a whole heap of money out of it. I mean, I suppose it’s potentially a portfolio balance issue. But still, you don’t think Wilson’s going to hate water? No, quite the contrary, and I think when you look through the strategic agricultural fund, the aggregated interest in the water fund in the portfolio is about 30 per cent and it is a cornerstone investment of the fund. Like any sort of outlook statement, an investment can’t be guaranteed and the quite stellar performance that the water fund has produced to date may moderate to some extent, but we’re certainly not expecting any great negative kind of movement. Just one final kind of big picture question, Michael. Do you think that when all this is finished, history will show that the only losers in the collapse of Blue Sky were the investors in BLA, the head company? That’s a big call because clearly BAF investors have suffered sort of indirectly as a result of what’s happened to BLA. We’ve just been talking about the discounts to NTA and there’s certainly been shareholders, for example, who have exited at a discount to NTA. I was certainly conscious that they have not had as good an outcome as might have otherwise been. But I know where you’re going with a question I think if you sort of look ahead and if our investors who’ve been patient and loyal and stayed with us and we move into a WAM managed world – again, one of the great attractions of Wilson Asset Management to the BAF board is their retail LIC capability. You reference one of their LICs trading at a premium. If we can grow the fund, certainly Geoff made a statement at our AGM, where he couldn’t see why the BAF fund couldn’t be grown to a billion-dollar fund. We’d love to see that happen and if we were in that world and we’ve addressed the discount to NTA in that new world, then your statement within your question is going to be more correct, but BLA shareholders have probably been the main unfortunate victims of what happened to Blue Sky Thanks very much, Michael. All right, thank you, Alan, appreciate the opportunity. That was Michael Cottier, the Chairman of Blue Sky Alternatives Access Fund. Alan Kohler --- ends --- Disclosure: I hold BAF shares. I also follow GVF and have held GVF shares. I also hold shares in some of WAM Funds LICs, including WAM, WGB and WLE currently. Note: as a reply to a forum post, I can not add links, use bold or italics, or go back and edit anything after I post it, so that's why this post might look pretty dull and contain a typo or three (possibly). Strangely, these replies do have a spellchecker function, whereas straws don't, so I hope there aren't any spelling mistakes...

Thanks for the responses.

Just a quick shout out to ArrowTrades and Bear77 for their input on here and detailed explanation of their investment case for this one 6 months ago. It was a trade that required a small amount of research before a purchase, then it played out exactly as they said it would. Cheers