Pengana’s private equity LIT offer

(Jonathan Shapiro, Australian Financial Review)


Pengana Capital Group chief executive Russel Pillemer says he is confident the year’s first listed investment company offering will succeed because individual investors are seeking exposure to private equity – and a 5 per cent incentive will further encourage participation.

The Sydney-listed fund manager, which has a market capitalisation of $225 million, is due to announce an initial public offer of between $250 million and $1 billion for the Pengana Equity Trust, which will invest in global private-equity assets.

Pengana has appointed Grosvenor Capital Management to select investments for the trust and construct the portfolio. The Chicago-based group has $US52 billion ($72.3 billion) of funds under management in private equity, hedge funds, infrastructure and real estate.

As previously reported by The Australian Financial Review, the offer will include the issue of “alignment shares” in the listed funds management business Pengana Capital.

The share issue effectively will increase the net asset value of the new fund units to $1.3125, a 5 per cent increase on the $1.25 subscription price.
After two years, the alignment shares will then be issued to the fund’s unitholders in a proportion relative to their holding. Pengana, which has about $3.5 billion of funds under management, will also cover the costs associated with the raising.

The announcement comes before a shareholder meeting to approve the issue of the alignment shares, a new mechanism that Mr Pillemer says is a “win-win” for investors in the fund and shareholders of the investment management company.

Mr Pillemer said the 3 per cent cost associated with raising the fund and the 5 per cent cost of the alignment shares meant the cost of the funds raised would be 8 per cent.

But the ongoing management and performance fees would create more value for the listing funds management business, making the raising accretive for current shareholders.

Mixed year
“Investors appreciate the notion that they will share in some of the upside this deal creates for the fund manager, and secondly, it gives them an extra kicker for coming into the IPO,” Mr Pillemer said.

“It is both a kicker and a buffer [if the asset value falls] so it has been viewed positively.”

Pengana’s private equity offering comes after a mixed year for the listed investment company, or LIC, raisings.

LICs are effectively managed funds in which the capital is raised via an initial public offering. Investors do not allocate or redeem funds but rather buy or sell shares on the exchange to enter or exit the investment. This often results in the share price trading at a premium or discount relative to the underlying assets of the funds.

The listed investment company market had been in the midst of a boom, as the number of funds doubled to more than 100 in the five years to 2018, but the significant under-performance of the $1.35 billion L1 Capital offer in the first half of the year dampened enthusiasm for these investments. The trading performance of L1 was blamed partly for the postponement of deals by two other fund managers, Firetrail and Regal Funds Management.

Meanwhile, Watermark, which was among the earliest funds managers to raise money via an LIC offering, has elected to delist its funds because of a widening share price discount relative to the fund’s assets.

However, other LICs tied to investments in other asset classes have benefited from strong investor demand. For instance, the Neuberger Berman high yield bond LIC trades at a slight premium to its net tangible asset backing.

“The word we received from the market is it is a tough time to launch a listed equities LIC,” Mr Pillemer said.

“But alternative products are in more demand than they were six months ago.”

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