We made a number of changes to the portfolio during the month as new positions were initiated and 4 holdings were sold entirely. We exited fully from last year’s top performer, Kinnevik, as well as from Granite Real Estate, Henderson Land and JP Morgan Private Equity. In the Far East we bought Hyundai Motor Preference Shares and Hitachi, both on wide discounts.
We are always looking for measures that companies can take to improve shareholder returns and often try and engage with management accordingly. In the UK we bought a stake in WM Morrison. Recent weak operating performance has left the shares trading at relatively low multiples, as well as below the theoretical value of its real estate. Pressure is mounting on management to deliver returns for shareholders and a number of large value/activist investors have stakes in the company. Similarly, we recently invested into German industrial conglomerate, ThyssenKrupp. It too has made poor capital allocation decisions in recent years with value destructive capital investments in their North American steel business. They have the attraction of a high quality elevator business, but the challenge of loss making steel business. They too are coming under pressure from activists.
Amongst our investments in listed private equity funds, we continue to use our clout on the shareholder register to engage with management in a constructive manner. Following the sale of the last tranche of the Lehman Estate’s holding in Neuberger Berman Private Equity Partners (NBPE), we met with the manager for an update. AVI is now the largest shareholder in NBPE with an 11% stake which accounts for 2.5% of our funds’ NAV. In line with our thesis, the discount has narrowed sharply following the removal of the perceived Lehman Estate overhang and currently stands at 19%, in from the 28% level where we last acquired shares at the end of 2013. The company’s transition from a fund of funds to a direct investor in private equity continues, with 55% of NAV now in direct investments. As the portfolio shift continues and is more widely recognised by the market, we expect its discount to contract further towards the single-digit average at which direct investing peers trade.