On this topic (MFG's two ASX announcements: 1) Consideration of conversion of Closed Class Units to Open Class Units and 2) the Keybridge Capital Meeting Request to wind up the (closed end) fund

UBS have released some first read notes (actually in relation to their valuation of MFG itself) but which flow on from this ...

Spotlight on MGF/MGFO as option expiry closes in

As the March 2024 option expiry for the closed-class Global Fund (MGF) closes in, Keybridge Capital (and its associates) has requested a meeting to vote on a special resolution to wind-up the $2.65bn fund. The fund currently trades at ~8% discount to NAV and the bonus options (MGFO) issued in Mar-21 allow unitholders to buy units at 7.5% discount to NAV. A wind-up would unlock both the discount to NAV and increase the likelihood of the options being exercised triggering MFG to pay the option liability ($160m). Concurrently, Magellan is proposing folding the closed-class fund into the open-class version to resolve the discount, amongst other actions. While there are complexities involved, MFG is targeting 2H24 for its unitholder meeting, which appears conflicted if it is exploring these alternatives post the option expiry

Partnership initiatives appear ill-conceived

In late 2020, MFG restructured its global equity funds, giving rise to a number of sweeteners "partnership initiatives" to unitholders in the closed-class units. These strategic investments were meant to deliver substantial IRR considering the closed-class funds were viewed as permanent capital. In hindsight, these initiatives were ill-conceived, given the now high likelihood of either wind-up or folding into the open-class product where investors will have the ability to redeem. Furthermore, the idea of a partnership with unitholders is questionable given the inherent conflict now associated with MFG benefiting if the bonus options are not exercised

Potential scenarios and valuation impacts

A special resolution to wind-up MGF would require 75% support, and is opportunistic in our view considering the tight timeline toward the Mar-24 option expiry. Noted, while Keybridge was the largest MGFO holder at 13.42% interest (at 16th August), it did not appear as a Top20 MGF holder despite the support of 99 other unitholders in order to request a meeting. In a wind-up scenario MFG risks losing ~$36m/pa of mgmt fee revenues (1.35% fee), and if all options are exercised at NAV would pay the $160m options discount. Our base-case scenario is (i) MGF is folded into MGOC and ~50% of $2.65bn FUM is subsequently redeemed ~2H24, and (ii) assuming the discount to NAV narrows by March 2024, not all unitholders will have the capital to exercise the options, and MFG will be on the hook for ~50% of the ~$160m option liability 

DISC: MGF (well the unlisted MF) (and MGOC) Held in RL