Boutique fund manager Spheria Asset Management are currently raising up to $250m for their new Listed Investment Company, Spheria Emerging Companies (SEC). The offer is open until 25 November, unless fully subscribed prior.
The fund will target a portfolio of small cap stocks:
The Manager will seek to purchase securities in businesses where the present value of future free cash flows can be reasonably ascertained, and the security is trading at a discount to the Manager’s assessed fundamental valuation. Risk controls are an important component of the Investment Strategy. The Manager will give preference for companies it considers to have relatively low risks, for example, entities that are geared to a level that the Manager considers appropriate, given the nature of the relevant businesses and have free cash flow to support that relevant level of gearing.
The fund may also target pre-IPO companies, however the majority of investment will be within listed companies who are in the S&P/ASX Small Ordinaries Index. The fund will aim to hold between 35-45 stocks at any point in time. The fund can hold up to 20% cash.
Spheria was only established in 2016, however in that time has built an asset based of over $380m in funds under management. The investment team are the ex portfolio managers of the Schroders Smaller Companies & Microcap Funds. They currently manage three unlisted managed funds, all with a small or microcap focus. Spheria Emerging Companies will be managed similarly to their Australian Smaller Companies Fund.
According to the ETF Watch Fund Database, Small Cap focused LICs occupy a crowded space with 11 LICs targeting this segment on the market. Many of these target different parts of the Small Cap segment and generally each manager brings their unique approach to differentiate themselves. In Spheria's case, their argued point of difference is their focus on small companies with high cashflows and low gearing levels.
In what has quickly become the norm for LIC IPOs, there will be no 'free' options tied to the offer, with the company absorbing all costs associated with listing, and repaying this cost over time through management fees.
Management costs of the fund will be 1.00% per annum (plus GST), with performance fees of 20% (plus GST) of outperformance beyond the benchmark every 6 months. The benchmark will be the S&P/ASX Small Ordinaries Accumulation Index.
Due to the fund's small cap offer, the total offer has been capped at $250m, with no oversubscriptions taken.
This post was prepared with publicly available information available from Spheria Asset Management. ETF Watch did not receive any payment from Spheria for this post.