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Cadence looks to the short term with Opportunities Fund (CDO) IPO

ETF Watch - Nov 14, 2018

There’s been a slow down in new LIC IPOs in recent times, but in what may be the last opportunity this year, Cadence Capital are currently raising capital for their Cadence Opportunities Fund (CDO). Raising up to $200m, the CDO IPO is due to close on 13 December 2018. Below we take a brief look at the offer.

Who is Cadence Asset Management?

Fund manager, Cadence Asset Management runs one of Australia’s older LICs, Cadence Capital (CDM). Launched in 2006, CDM has $340m under management and invests predominantly in Australian shares. CDM can invest in international shares, but historically this has been less than 20% of the total portfolio. CDM has a long/short mandate, but tends to focus more on ‘long’ opportunities.

Cadence apply both fundamental and technical research to their approach, believing that using both has a greater probability of producing high returns than using one approach alone. CDM also applies technical rules to its buying and selling decisions, meaning when these rules are triggered the portfolio automatically acts on them. Only 5% can be invested in any one position.

Below is the performance history of CDM compared to the quasi benchmark, the SPDR S&P/ASX 200 ETF, STW. The chart shows the performance of $10,000 invested at CDM’s inception, assuming all dividends are reinvested (at share price, not NTA), and ignores the impact of franking credits. The chart shows CDM’s main period of outperformance in the post GFC period of 2009 to 2012, with investors who have held through the course of time receiving outsized returns against the benchmark.

 

What is Cadence Opportunities Fund’s investment mandate?

CDO will apply a similar mandate to the successful CDM fund, however will focus on shorter term opportunities.

They will classify investments as either trading or research driven core investments, typically investing in up to 40 of each type of investment.

CDO will also apply the same rules based approach to transacting as CDM.

The core difference in CDO to CDM will be in the time it looks to focus on trends identified, with CDO set to take a shorter term view, meaning higher frequency of trading compared to CDM. This will effectively make CDO a more active version of the CDM portfolio.

More on CDO

The manager will collect a management fee of 1.25% (plus GST) per annum. A performance fee of 15% applies for all returns. There is no benchmark hurdle for performance fees to apply, other than a high water mark (meaning it is essentially benchmarked against its own performance).

The manager will cover all costs on the IPO, meaning investors in the IPO will not have their share holdings diluted.

Details of the offer

  • Minimum Raising: $100m
  • Maximum Raising: $200m
  • Share Price: $1.25
  • Offer expected to open: 12 November 2018
  • Offer expected to close: 7 December 2018
  • Shares expected to begin trading on ASX: 20 December 2018

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This post was prepared with publicly available information available from Cadence Asset Management. ETF Watch did not receive any payment from Cadence for this post.

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