ARC Invests in Specialist Boutique Fixed Income Manager - Magnum Funds Management

ARC Funds Ltd (ASX:ARC) (ARC or the Company) is pleased to announce that it has entered into a binding agreement to acquire 25% of the issued share capital of Magnum Funds Management Pty Ltd (Magnum Funds Management), a newly established fixed income funds management company based in Sydney, Australia.

Key Terms

Shareholding and Equity Investment - ARC is to acquire 25% of Magnum Funds Management Pty Ltd for $50,000. Magnum Holdings is to acquire new shares and hold 75% of Magnum Funds Management for $150,000.

Marketing and Distribution - ARC has committed to investing a minimum of $200,000 to be used in respect of marketing and distribution of the Magnum Fixed Income Fund over the initial 2 years.

Investment team - Magnum Holdings will also be responsible for procuring and funding the costs of the investment team up until the Magnum Fixed Income Fund surpasses $32.5m of funds under management (FUM), at which point these costs will be borne by Magnum Funds Management.

Magnum Fixed Income Fund - Magnum Funds Management will be the Investment Manager of the Magnum Fixed Income Fund, an actively managed Exchange Traded Fund intended to be listed on Chi-X and available to both retail and wholesale investors.

Magnum Funds Management - Harley Grosser (ARC Managing Director and ARC nominee) is to be appointed to the board of Magnum Funds Management. A shareholders’ agreement dated 2nd November 2021 between ARC, Magnum Holdings and Magnum Funds Management will regulate the conduct, control and governance of Magnum Funds Management and the establishment of the Magnum Fixed Income Fund. The shareholders’ agreement is on terms that are customary for an agreement in the circumstances, and includes certain ‘non-compete’ provisions.

ARC Options - In consideration for Magnum Holdings entering into the transaction, ARC has issued 1,000,000 unlisted options over fully paid ordinary shares in ARC (Options) at an exercise price of $1.00 per share, with a 3-year expiry

***

Not a new announcement but I don't think we covered it here and it gives a chance to talk briefly about ARC. This investment is the second to be added to the newly revamped ARC funds stable, joining Merewether Capital. It's not entirely clear who/what Magnum Holdings is and Magnum Funds Management looks like it's a startup, and they're not acquiring a Wini as part of the deal. From ARC's perspective the investment itself seems modest (even including the marketing commitment) and the fact Magnum Holdings will fund the investment team costs until it reaches scale gives ARC a bit of a free hit - if you call $250k "free". The biggest impact is the issue of 1m in ARC options to Magnum Holdings. But whereas this last bit is often contentious, the exercise price of $1.00, with a three year expiry, is much more aligned to shareholder interests.

For me this is one that stays on the watchlist but on face value this does nothing to harm the investment case. Just bear in mind ARC is a sub-$20 market cap company and is extremely thinly traded.

[Not held - on watchlist]