Forum Topics WAM Strategic Value - upcoming IPO
Bear77
3 years ago

26-May-2021:  https://www.ausbiz.com.au/media/wam-declares-war-wilson-asset-managements-lic-number-eight?videoId=10580

WAM declares WAR; Wilson Asset Management's LIC Number Eight:

"Jesse Hamilton WAM CFO introduces Scutty and Annette to a market full of mispricing opportunity: securities trading at discount to assets or net tangibles, corporate transactions, dividend yield arbitrage with franking benefits - its all out WAR."

Jesse Hamilton on why they've gone with the WAR ticker code, and how they plan to see gaps between SPs and NTAs close with the CEFs (Closed End Funds: LICs and LITs) that they invest in.

Click on the blue link above to view the interview with Jessie on Ausbiz.

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Bear77
3 years ago

https://wilsonassetmanagement.com.au/2021/04/12/wam-readies-new-strategic-value-strategy-raising/

https://www.afr.com/street-talk/wam-readies-new-strategic-value-strategy-raising-20210411-p57i7b

 

From that AFR article on 11-April-2021:

 

Geoff Wilson’s expecting another baby.

The hall of fame stockpicker and father of seven listed investment companies under the Wilson Asset Management (WAM) banner is understood to have an eighth in the works.

Lucky No.8 will be called “WAM Strategic Value” and is expected to list on the ASX via an initial public offering this side of June 30.

Wilson’s team set up the holding company, WAM Strategic Value Limited, as an Australian pubilc company last week in a sure sign there’s a new LIC brewing.

Stockbrokers are also lining up for roles selling the deal; Wilson usually taps Hamish Nairn at Taylor Collison and Morgans, and he is not one to change a successful formula without the need to.

Wilson declined to comment on Sunday.

The big question is what will WAM Strategic Value target? Wilson already has Australian large caps, small caps and microcaps covered, as well as global equities, a relatively new alternatives strategy and an active fund that trades like a small hedge fund. Any new vehicle’s unlikely to overlap with the existing strategies.

If the Wilson watchers are to be believed, “strategic value” will be about trying to buy $1 worth of assets for 80¢. That’s one of Wilson’s favourite catchcries.

And if history is any guide, it could be about buying stakes in listed investment companies. There’s dozens of LICs on the ASX boards trading at steep discounts. The worst (or best, for an activist investor) definitely fit into the $1 of assets for only 80¢ category.

Wilson’s funds already have stakes in a bunch of LICs. WAM Capital, the biggest vehicle in the family, owned shares in at least a dozen LICs at June 30 last year. Its holdings included Charles Goode’s Australian United Investment Company, Euroz’s Westoz Investment Company, Sydney’s Spheria Emerging Companies and NAOS Small Companies, and Templeton Global Growth Company.

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Also:  Keybridge Capital (KBC) and Pengana International Equities (PIA) are both held within WAA and WAM, with PIA being a top 20 holding in both funds and KBC being a top 20 holding in WAA.

I'm still working through this - in terms of whether it would be a good move to get involved with the IPO of WAM Strategic Assets or wait and see where they settle in terms of an NTA discount or premium.  I'm leaning towards waiting.

Further Reading:

https://wilsonassetmanagement.com.au/2021/05/04/wilsons-wam-to-unleash-war-on-underperforming-rivals/

https://www.afr.com/street-talk/wilson-s-wam-to-unleash-war-on-underperforming-rivals-20210503-p57oas

 

From that AFR article on 03-May-2021:

 

Geoff Wilson’s Wilson Asset Management is readying for WAR.

That’s the ticker for its new listed investment company, which is slated to spring to life with a $225 million initial public offering due to kick off as early as this week.

It is understood WAM’s team has spent the past week or two marketing WAR, or WAM Strategic Value, to existing clients and financial planning groups, to make sure the cash rolls in when the offer opens later this month.

The $225 million deal was slated to be priced at $1.25 a share, according to a presentation given to potential investors, while the first $125 million would be reserved for existing WAM investors (dubbed the Wilson Asset Management Family).

Firm founder Wilson will personally manage the WAR portfolio and target anything trading at a discount to its underlying asset values. His primary focus will be on other listed investment company and listed investment trusts, the presentation said.

Of course WAM’s no stranger to LIC and LITs. The firm already has 18 positions worth $147.7 million and trading at an average 14.3 per cent discount to their asset backing, the presentation said. It would make sense if some or all of those ended up inside WAR, given its strategic objectives.

Those positions include shares in the likes of high-profile LICs run by L1 Capital and VGI Partners, where WAM is already a shareholder, as well as smaller offerings from the likes of Naos Asset Management, Antipodes Partners, Spheria Asset Management and Thorney.

It will be interesting to see how those managers take having WAR on their register. Closing discounts is generally seen in everyone’s best interest, but it can also put existing managers’ jobs on the line.

Taylor Collison and Morgans are named as joint lead managers to WAR’s IPO.

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Further Reading:

WAM Strategic Value Priority Allocation

https://wilsonassetmanagement.com.au/lic/strategic-value/

7

I just noticed the performance fee planned for this new LIC and thought pretty disappointing.

I blogged about the WAR LIC this morning on this link

New Wilson WAR LIC and what they might buy

I am more curious about whay they might invest in, rather than myself ever looking to invest in WAR itself.

9

Bear77
3 years ago

Yes Steve - I decided yesterday on that exact strategy - watch them and perhaps sometimes jump on the same CEFs (closed end funds, such as LICs) when it looks like WAR might have a quick win with closing the gap between the NTA and the SP.  This one is going to be managed by Geoff Wilson himself - as the lead PM, and I think Oscar would be more than happy if Geoff took companies like PIA and TGG off his hands (currently held in WAA and WAM) - although it's not very clear what the strategy is going to be with regards to that.  Is WAA and WAM still going to invest in these LICs and other crusade stocks (like Keybridge Capital - KBC) that Geoff is trying to reform or extract value from or are those going to be the sole domain of WAR in future?  Geoff has had mixed success with them, and it is my opinion that many of them have dragged down the performance of WAA in particular and also WAM to an extent, when you compare their performance and profit reserves with the superior performance and profit reserve of WAX - which does not hold such stocks.  I'll be watching, but not getting involved in the WAR IPO.

10

It is a good question in terms of the future of WAM & WAA and their investing in other LICs. I didn’t listen in on the presentation yesterday so not sure if this has been covered.

Without knowing, my GUESS would be that over time WAM does not invest in LICs much at all in the future. In many examples WAM is probably getting too large for that generally speaking. Maybe it would just invest in a very large activist LIC target if it came about. A handy backstop if say WAR & WAA were trying to boost control over a LIC but the position size was getting too big for those two.

WAR obviously is the main vehicle for these strategies now, however I suspect WAA might continue to play around here also. It suits the mandate description of WAA from memory. Also WAA will probably be quite smaller than WAR in the medium term at least. For that reason, perhaps occasionally WAA might find a very small target LIC worth only $50 million. i.e. that might suit WAA but be a bit small for WAR.

I think you might be right in that the LIC discount strategy has probably been a drag on WAM & WAA compared to if they didn’t buy LICs at all. I think they might be able to counter argue though that the LIC investments have been much lower risk (given so much underlying diversification and Geoff’s strategy that if the discount keeps widening I will buy the whole thing!). So on a risk / return view I am not sure I would conclude that the strategies have been bad for WAM & WAA. It is quite debatable though and an interesting question.

A similar debate in a way is how the Wilson funds have historically held higher cash balances. You can argue this has cost them plenty of extra performance. Then again has this helped them keep their nerve navigating bear markets, how can we accurately necessarily measure that?

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Bear77
3 years ago

Fair points there Steve.  In my experience, WAA has underperformed WAX always, or underperformed equally along with WAX when WAX underperformed, such as early 2019 when they did go to cash (late in 2018) and didn't get back into the market quickly enough.  Over the past 18 or so months WAX has performed very strongly, built up a very handy profit reserve and WAA has not done as well.  WAX is 100% research driven.  WAA is 100% market driven.  The market driven strategy has seriously underperformed the research driven strategy.  WAM Capital (WAM) is 50/50, holding EVERY stock that WAA & WAX hold, except in much larger quantities, because of its size, plus some from WLE and WMI.  WAM has also seriously underperformed WAX and only just managed to cover their own dividends in recent times.  There had been an expectation, including from within WAM Funds, that WAM would be forced to cut their dividend simply because their profit reserve wouldn't cover the dividends.  They managed to scrape through without cutting this year, but we'll see what happens next year.  What you will notice is that WAM's dividends have not been rising, whereas WAX's dividends have been rising, at a good clip too, which is what you can do when you have a superior investing strategy.  I understand what you're saying about lower volatility - and that high cash levels also plays a role in that - however I struggle to find a period in which WAA outperformed WAX, i.e. when has the market driven strategy EVER outperformed the research driven strategy?  I believe the LIC discount strategy has been a key element of their market driven strategy, and while it has done well for them on occasion, their research driven strategy is where the biggest gains have been made.  In my opinion.

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Bear77
3 years ago

Update:  According to their April newsletter - out today, WAM's PR (profit reserve) is now up to 27.8 cps (enough for 18 months of divs) which is a big improvement over 6 months ago, WAA has 11.4 cps, almost enough for 2 years, and WAX has 40.4 cps, enough for 4 years of dividends.  So they've improved the situation since I last looked at their profit reserves.

8

Good points Bear and I suspect you have a better idea on this debate than I would, I think I remember you posting before you have still been a holder of some of these LICs in fairly recent times.

I on the other hand haven’t been a holder of WAM, WAX, WAA to any significant amount for quite a long time. So whilst I do follow quite closely what they do, I probably haven’t investigated them enough in recent times to appreciate the underperformance of WAM / WAA compared with WAX. The counter arguments I raised might be a little weak, but a kind of interesting discussion nonetheless.

This afternoon by the way I have been listening to a replay of yesterday’s webinar. It looks like WAR might buy a lot of LICs from the likes of WAM & WAA in an “arm’s length” transaction to get a decent chunk of the portfolio started. So longer term sounds like Geoff wants to make it clear that WAR is the one for these type of strategies.

With perhaps an exception to for example if they want to make a 100% takeover offer of a rival LIC. In such a case the expensive WAM scrip and big asset base could see them involved.

Due to the above I doubt it is a case of WAR having to quickly deploy a full $225 million into LICs in the secondary market. However if they do find a new LIC opportunity that is only closer to $50 million in size I guess it will still (like it has previously) be challenging for them to get set.

I also suspect that some of the $225 million if they raise it will be deployed into LICs on the secondary market, I have my doubts they would fit out all of the new WAR portfolio from existing LICs from other Wilson funds. I must admit I am not clear to what extent though.

So those WAM Capital shareholders who are not that excited by the discounted LIC strategy, they might be happy about this tilt in strategy changes.

8

Bear77
3 years ago

I think you're right - although WAA certainly does not have the same loyal shareholder base that WAM & WAX have.  Just some stats derived from today's release of their April report:

LIC, 30-Apr SP, 30-Apr NTA, Premium/(Discount), profit reserve (PR), years worth of dividends in profit reserve (based on past 12 months' dividends):

  • WAX, $1.68, $1.21, 38.8% premium, 40.4cps, 4.1 years 
  • WAM, $2.33, $1,96, 18.9% premium, 27.8cps, 1.8 years
  • WAA, $1.09, $1.06, 2.8% premium, 11.4cps, 1.9 years
  • WMI, $1.87, $1.69, 10.7% premium, 45.3cps, 5.7 years
  • WLE, $1.46, $1.40, 4.3% premium, 30.7cps, 4.4 years
  • WGB, $2.60, $2.72, (4.4% discount), 57.1cps, 5.7 years
  • WMA, $0.985, $1.12, (12.1% discount), 7.6cps, 1.9 years (only became managed by WAM Funds 14-Oct-2020, but past 12 months' div's were 4cps)

I am not currently holding any of them Steve, but recently sold out of WGB and WMI after both had good runs into NTA-premium territory.  My average sell price for WMI was $2.10/share in early April, half before they went ex-div, and half just after (before they started falling), and at that price they were trading at a 27.3% premium to their March 31 NTA of $1.65.  I was happy to exit at that point because the downside looked greater than the upside, and here they are at $1.91 (today's close).  Many of the high dividend payers in the WAM stable do have a big pullback after their ex-div dates, but strangely it doesn't happen all on day one, but often over a period of weeks.

In the past couple of years I have held BAF, then sold them after they became WMA and the discount-to-NTA closed considerably, as well as WLE.  The low PR and the underperformance relative to WAX and WMI has kept me out of WAM and WAA for around 3 or 4 years now, but I do have a look at them on a reasonably regular basis.

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