NATURE OF BUSINESS:
Phoenix Realisation £33.2m
Phoenix Private Equity £14.6m
% OF TOTAL ASSETS
Phoenix Realisation 3.7%
Phoenix Private Equity 1.6%
Phoenix Realisation 0%
Phoenix Private Equity 30%
Total Weighted Average 9%
Our position in Vietnam Phoenix Fund is now in the final innings of what has been a very successful investment (in GBP +94% total return, +30% IRR), yet we still see scope for further upside. However, this successful return was not achieved by sitting on the sidelines….
We first invested in Vietnam Phoenix Fund in June 2013. Despite a successful track record, the company’s shares languished on a near-40% discount due to an egregious fee structure, poor corporate governance, a conflicted board and the absence of any discount control measures.
*All figures as at 3 January 2017
AVI accumulated an 18% stake in the company and became the catalyst for several changes.
- We removed the three management representatives from the board
- Had two of our nominees appointed as directors.
- The company cancelled the 10% of its shares held in treasury and began a new buyback programme.
- We extracted a public commitment from the board that the manager’s contract would not be extended on the same terms and to hold restructuring proposals to open-end the fund.
On the 30 th September 2016, these restructuring proposals were passed at the company’s AGM with 92% of votes in favour. On the first day of 2017, all shareholders received a closed-end ‘private equity run-off’ share class (c.1/3rd of NAV), while the liquid assets (c.2/3rds of NAV) were split between an open-ended realisation class and an open-ended continuation class depending on shareholder preferences.The assets in the open-ended realisation class will be liquidated over a 2-3 month period and cash returned at NAV. AVI opted for the realisation class and has thus benefitted from the complete elimination of the discount on c.2/3rds of our holding.
The fee structure on the private equity vehicle ensures a strong alignment of interests between the manager and shareholders, and is well-designed to incentivise the manager not only to achieve exits in a speedy fashion, but also to increase NAV. The manager’s acceptance of these terms is, in our view, a substantial vote of confidence in the unlisted assets and their carrying values, which are also supported by a record of achieving significant uplifts upon exits.The private equity shares are trading on a 30% discount, yet this will also be eliminated over time as assets are sold and the proceeds returned to shareholders.
NAV growth has been strong over the investment holding period as the cheap Vietnamese market performed well in the wake of continued economic growth and the introduction of measures to further open up the country’s capital markets.
British Empire Trust focuses on a diverse universe of investment opportunities often ignored by mainstream investors: family controlled holding companies, closed end funds and other asset backed companies. This ‘investing in undervalued assets’ is what makes British Empire Trust an interesting addition to your portfolio.
This ‘investing in undervalued assets’ is what makes British Empire Trust an interesting addition to your portfolio.