CD Private Equity Fund III

ASX:CD3

CD Private Equity Fund III

ASX:CD3
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$1.270 (+1.2%)
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#407
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1
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Valuation of $1.650
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Dominator
Added 7 months ago

May 24

Valuation update with 30th March 2024 NTA of $1.83 (Valuation = $1.65). Still using a 10% discount. To note since last valuation in 23/4/23, 37c worth of distributions have been paid.

23 April 23

Valuation based on a 10% discount to NTA due to high fees and illiquidity. 31 March 23, NTA used. To note since last valuation of $2.04, 32c worth of distributions have been paid out. (Valuation = $2.00)

July 22

Valuation of $2.04 using 10% discount.

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#Investment Thesis
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Dominator
Added 2 years ago
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Main Thesis (applies to CD2 and CD3):

Investing in the LICs due to the very large discount to NTA (around 35%). The performance of all the Cordish Dixon (CD) funds has been very good over longer time frames so this investment is a value play looking to pick up assets for well under NTA. CD2 and CD3 are being bought because CD1 discount is smaller and the fund is older so less potential for growth in the performance of returns over time.

I believe a large part of the reason for the very large discount to NTA is the Dixon advisory hangover. Like the URF fund, there are large fees and previously conflicting fees. However, unlike URF the performance even after fees of CD funds has been very good. Dixon advisory (in its previous form) now has no role in the LICs. 

The CD funds are a "fund of funds" (hence the high fees) investing in private investment funds. The companies held by the funds are predominately US based. The companies purchased have existing and proven cashflows (ie this isn't a tech unicorn type fund). Each CD fund has a diverse range of underlying managers investing in a wide range of business segments.

General negatives/Risks:

  • Current investments do not continue to make the returns of the past. 
  • Dixon advisory hangover.
  • NTA never closes so you have to wait it out for the fund to close.
  • Extremely low liquidity. Must view capital as being committed. 
  • Very high fees around 2.5-4% mark plus 10% performance fee on a hurdle rate of 8%. Justifies a discount to NTA. 

How I expect this will play out:

Performance of the fund remains above the baseline of 8% and distributions continue to be passed onto shareholders when capital is returned by the underlying manager. Due to the low liquidity this would be the most likely way to realise gains from the investment in CD funds at this point in time. Additional gains to fund performance come from the purchase well below NTA. It is unlikely the discount the NTA will come close to 0% given the risks. Some profit taking should take place if share price returns to NTA. Only a small position will be taken.

Disclosure: Purchasing CD2 and CD3 IRL.


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