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Fat Prophets goes again with Global Property Fund (FPP) IPO

After raising around $50m only a few months ago for their Global Contrarian Fund, Fat Prophets are back at it, recently launching their Global Property Fund. They are looking to raise up to $220m for their new fund. The IPO closes on 1 September.

By ETF Watch - Aug 03, 2017

After raising around $50m only a few months ago for their Global Contrarian Fund, Fat Prophets are back at it, recently launching their Global Property Fund. They are looking to raise up to $220m for their new fund, with the IPO expected to close on 1 September, 2017.

Who are Fat Prophets?

Fat Prophets is known to many by its share tip subscription service. Boasting over 25,000 members, it is one of the most popular of these services in Australia. Launching in 2010 and adopting a contrarian approach to investing, the service has a solid track record according to the performance figures published on their website. Fat Prophets began expanding their service to global equities in 2015, launching their Global Funds Report.

What’s the investment Strategy?

According to the prospectus the fund aims to :

…be invested in a range of entities listed (or soon to be listed) on global developed market stock exchanges which the Investment Manager believes have attractive real estate operations and investments, and whose securities prices offer attractive value. The investment strategy will target income yield as well as identifying undervalued or mispriced opportunities where a catalyst for future capital relative value appreciation is identified.

The fund will generally hold 70-90 securities, with aroud a 25-35% exposure to Australian real estate (compared to the global benchmark of around 6%). The fund can also hold up to 15% in cash.

With a larger than benchmark exposure to Australian real estate, the fund’s benchmark will be 75% of the FTSE EPRA NAREIT Global Developed Total Return Index and 25% of the S&P/ASX300 AREIT Accumulation Index.

Why real estate?

The fund will invest in Real Estate Investment Trusts (REITs). Rather than holding residential properties as individual investors generally hold, REITs generally hold commercial real estate such as office buildings, shopping centres & industrial properties. They are generally bought by investors as high yield, low volatility (compared to shares anyway) investments. This is not always the case however, with REITs seeing huge losses during the GFC, due to the high levels leverage they had built in the pripor years. Nevertheless according to their investor presentation, Australian REITs (AREITS) on aggregate have 40% less volatility than Australian shares.

Listed Investment Trust Structure

The fund will be listed as a Listed Investment Trust (LIT), compared to the more common Listed Investment Company (LIC) structure. We looked at the two structures when Forager Australian Shares listed last year, with the key difference being the trust structure must pay out all earnings to investors, whereas a company is able to retain earnings, and therefore provide a more consistent income stream to investors.

Where does this fund fit in the LIC universe?

Somewhat surprisingly, there are no LICs currently available that invest exclusively in REITs. There are many that include some exposure, for example the recently launched URB Investments Limited has a reasonably large exposure to direct property investments, giving them a similar asset class makeup. For investors seeking exposure to this large and popular sector, the IPO may appeal.

There are a number of ETFs which focus on listed property. According to the ETF Watch Fund Database, there are 5 ETFs that focus on property, with a combination of Australian and global property. AMP offers the ETF with the most similar profile to the Fat Prophets Global Property Fund, with their Global Property Securities Fund (RENT) offering active exposure to listed property in an ETF structure for 0.99% pa. For those seeking exposure to the sector without the active manager price tag, Vanguard, SPDR and VanEck offer ETFs for 0.23%-0.50%pa.

As per the usual LIC IPO process, investors in the IPO will be gifted a free option for every share they purchase. These options have an expiry date of 24 months after listing, however will take 12 months to vest. Shares will be listed at $1.10, with Net Asset Value of between $1.058 to $1.067. Investors in the IPO should be aware of the above 2 facts, as exercise of options in the future will result in dilution of capital, and for every $1.10 invested, the investor will actually receive between $1.058 and $1.067 worth of shares. Management fees will be 1.00% of assets per annum, with a performance fee of 17.5% of outperformance.

Quick Links

IPO Facts

  • Minimum raise of $27.5m
  • Maximum of $220m
  • $1.10 issue price
  • 1 option attached for each share
  • Offer open date 1 Aug 2017
  • Offer expected to close 1 Sep 2017
  • Expected trading on the ASX 13 Sep 2017

This post was prepared with publicly available information available from Fat Prophets. ETF Watch did not receive any payment from Fat Prophets for this post, but may receive referral payments from OnMarket Bookbuilds.

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