International equity specialist VGI Partners has launched a prospectus for a new listed investment company, VGI Partners Global Investments Ltd, offering retail investors access to the high conviction, long-short portfolio it has managed for high net worth investors since 2009.
VGI’s target subscription is a minimum of 50 million shares at $2 a share. It will issue up to 150 million shares, before oversubscriptions. The offer is expected to close on September 8, with ASX listing scheduled for September 28.
Independent Investment Research has reviewed VGI Partners and its LIC prospectus, giving it a ‘recommended plus’ rating.
IIR says the manager has a disciplined investment process and has been able to achieve its objectives of preserving capital, while generating above-market returns.
VGI Partners was founded in 2008 by Robert Luciano, who was an executive director and investment manager at Caledonia Investments prior setting up VGI. Luciano has also worked as an equities analyst and portfolio manager at Allianz Equity Management and BNP Paribas.
Other members of the team include Doug Tynan, who was an analyst in the corporate finance and assurance divisions of BDO Kendalls before joining VGI, and Robert Poiner, who was an analyst at JP Morgan.
The company’s executive chair is David Jones, who was managing director of CHAMP Private Equity from 2002 to 2011, country head of UBS Capital from 1999 to 2002 and a division director at Macquarie Direct Investment prior to that.
VGI manages $1.1 billion for around 250 high net worth individuals, family offices and endowment funds.
According to the prospectus, VGI’s investment focus is on “providing investors with capital growth over the long term through investing in a concentrated portfolio of global listed securities, always with a strong bias to capital preservation.”
VGI’s longest running Australian dollar fund, the VGI Partners Master Fund, has produced an average return of 14.6 per cent a year, after fees, since it was established in January 2009.
The MSCI World (AUD) Index produced an average return of 10.7 per cent a year over the same period. While the MSCI has had two negative years since 2009, the VGI fund has not had any down years.
The LIC portfolio will closely follow the Master Fund portfolio. It will hold up to 25 securities but the strategy does not require a minimum or maximum number of long positions. A single stock cannot be worth more than 20 per cent of the fund’s net asset value.
The portfolio will include short as well as long positions. A typical single short position would be equivalent to one or two per cent of the fund’s NAV.
Delivering a high dividend is not a primary objective of the investment strategy. As a result, there may be extended periods when the company does not pay regular franked dividends to shareholders.
The investment strategy has no geographic limits but the plan is to invest in developed markets “that are transparent and have strong accounting and regulatory standards.”
The manager will not seek to replicate or have regard to an index in the construction of the portfolio.
The management fee is 1.5 per cent and there is a performance fee equal to 15 per cent of the portfolio’s performance, subject to as high-water mark.
IIR says the performance hurdle is one of the company’s weaknesses. “We do not view it as appropriate to reward the manager in addition to the management fee for simple generating capital growth for investors.”
The other weakness it highlights is the lack of a majority of independent directors on the LIC board.
The prospectus describes the qualities VGI looks for in a “great business”: dominant in its industry and has been through periods of recession and emerged stronger; superior return on capital achieved through high margins and low capital investment requirements; sustainable competitive advantage; significant cash flow and excess cash; strong balance sheet; and high-quality management.
