Wilson going to WAR in the search for value

Wilson Asset Management’s founder Geoff Wilson is gearing-up for a new $225 million listed investment company (LIC) called WAM Strategic Value Limited (ASX: WAR). The listing price will be $1.25 a share.

According to the prospectus,  plans are to issue between 13.2 million shares and 180 million shares, depending on demand. The first $125 million would be reserved for existing WAM investors (dubbed the Wilson Asset Management Family).

“WAM Strategic Value will focus on identifying and capitalising on share price discounts to underlying asset values of listed companies, primarily listed investment companies (LICs), listed investment trusts (LITs) and other closed-end investment vehicles.”

Interestingly, the strategy would focus on Australian LICs and LITs purchased at a discount to their underlying asset values with the hope that these prices will move closer to their underlying asset value (discounted assets). Wilson says that “essentially, we are focused on identifying and investing in $1 of assets for 80c… there are currently 80 entities trading at a security price discount to their underlying NTA, within the sector”.

Wilson has built a strong track record advocating for change with many underperforming listed entities, with generally positive results. In many cases, the Wilson funds will acquire a significant stake and begin agitating for a management change or in other cases, offer to purchase additional units in an effort to grow their own assets under management. Recent examples include the push for alternative management of the Contango Income LIC, the purchase of franking credits from Amaysim and taking over the Blue Sky Alternative Asset Fund. WAR is set to formalise this acquisitive and ambitious strategy.

The prospectus focuses on diversification benefits. Here are some dot points:

• Four key areas of investment strategy – 1. Performance 2. Steady stream of fully franked dividends 3. respecting shareholders and 4. strong engagement and communication with investors.
• The investment manager will diversify investments within the portfolio so to reduce the company’s exposure to abnormal falls in the market price of any single investment.
• Through an investment in LICs and LITs, the company may have exposure to a portfolio of listed equities, credit, fixed income, infrastructure, private equity, real estate and cash.
• A closed pool of capital, strong corporate governance and the ability to pay fully franked dividends are a big benefit to shareholders.
• The investment management team has significant experience in funds management, Australian and global listed equities, alternative assets and corporate governance.

Bell Potter is forecasting the market capitalisation of LICs and listed investment trusts on the ASX at more than $50 billion. However, if we look at the largest 100, roughly 80% are trading at a discount.

Fees

In return for the performance of its duties managing the portfolio, the investment manager would be entitled to be paid a monthly management fee equal to approximately 1.0% (plus GST) a year – that’s arguably a little on the high side for a LIC. It comes together with a performance fee equal to 20% of the increase in the value of the portfolio above the high-water mark in each performance calculation period (typically every 12 month period ending 30 June).

The investment team won’t just be seeking discounted LICs, but will look to invest the portfolio in other opportunities such as takeovers, spin offs, capital raisings, corporate restructuring and, hybrids. 

Taylor Collison and Morgans are the joint lead managers to WAR’s IPO.

Ishan Dan

Ishan is an experienced journalist covering The Inside Investor and The Insider Adviser publications.