Founded in 1998, VGI Partners is a global fund manager based out of Sydney and New York. They are in the process of launching a new LIC, VGI Partners GLobal Investments Limited (VG1), which is seeking to raise up to $400m in their IPO. The IPO is expected to close on 8 September 2017. The IPO has reportedly garnered significant interest, raising $100m in its first week of opening.
Until now only the elite few have had access to VGI partners, with their funds open only to high net worth individuals, family offices and endowment funds. They have over US$1.1 billion under management and have stated they aim to close their funds to new investment when they reach $1.25 billion. That number may come sooner rather than later depending on the success of their latest offering. There is no published data available for their performance history, however according to the Prospectus, their flagship fund has returned 14.6% pa after fees since it was established in 2009 whilst holding an average of 28% cash over the timeframe, resulting in outperformance of around 4% pa compared to the benchmark.
According to the prospectus the fund aims to provide investors with a concentrated portfolio that:
- will be predominantly comprised of Long and Short Positions in global listed securities.
- will be actively managed with a focus on capital preservation; and
- aims to generate superior risk adjusted returns over the long term (...more than 5 years)
As the name suggests, the company has a global mandate and may invest in listed securities, pre-IPO securities, derivatives and cash, with the majority of the portfolio hodiing long and short positions in global securities. They aim to hold 10-25 long positions at any point in time. To reduce risk, long plus short positions are limited to 150% of the portfolio's NAV.
In what is beginning to become a more common approach, the manager will not be providing investors in the IPO 'free' options, which for the last few years at least have been the way fund managers have enticed investors to participate in LIC IPOs.
Free options are generally provided as investors in the LIC are effectively paying the costs borne by the fund manager to list (legal fees, ASX listing costs, commissions to brokers, etc). When the fund lists, the Net Asset Value (NAV) of the fund is generally 2-4% less than the investor paid for the units. This is where the free options come in as the reward for investors to participate. If the share price rises, the options are 'in the money', but if the price falls the options expire worthless and the investor has only given up the 2-4% premium to participate.
VGI will be paying all listing costs, meaning every dollar invested will be available to the manager to invest on day 1. Because of this, there's no need for 'free options'. We'd like to see more managers take this approach going forward as it is more transparent and equitable to investors and avoids the 'option lag' which can follow a LIC for the first year or so of operation as any exercising of options dilutes investors' holdings.
The company will fund the listing costs by not paying themselves any management fees until all listing costs have been recouped.This provides a double win to investors.
Global LICs have been one of the hot IPO sectors of the last couple of years.There are now 22 global LICs available on the ASX, with 9 of these being launched in the last 2 years. Global share bohemeth Magellan has announced an upcoming IPO with a priority offer to existing shareholders which could see it raise $2.5 billion, so we don't see the rush for new global share IPOs to abate. Nevertheless, VGI Global gives investors the ability to access a fund manager previously available only to the big end of town and one that seeminly will soon be closed to new investors.
Management fees will be 1.50% of assets per annum, (once initial listiing costs are recouped) with a performance fee of 15% half yearly of all positive performance. Investors should be aware that the fund will not benchmark its performance, so performance fee will apply to any performance, not just performance beyond a benchmark which is the more common approach.
This post was prepared with publicly available information available from VGI Partners. ETF Watch did not receive any payment from VGI Partners for this post.