REG - AVI Global Trust PLC - Monthly Factsheet

AVI Global TrustAnnouncement

15/05/2024 17:30

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RNS Number : 6141O  AVI Global Trust PLC  15 May 2024

 

AVI GLOBAL TRUST PLC

 

Monthly Update

 

AVI Global Trust plc (the "Company") presents its Update, reporting
performance figures for the month ended 30 April 2024.

 

This Monthly Newsletter is available on the Company's website at:

https://www.assetvalueinvestors.com/content/uploads/2024/05/AGT-APR-2024.pdf
(https://www.assetvalueinvestors.com/content/uploads/2024/05/AGT-APR-2024.pdf)

 

Performance Total Return

 

This investment management report relates to performance figures to 30 April
2024.

 

 Total Return (£)   Month  Calendar Yr  1Y     3Y     5Y     10Y

                           to date
 AGT NAV            0.8%   6.0%         25.4%  27.8%  72.0%  171.3%
 MSCI ACWI          -2.4%  6.5%         17.9%  25.3%  63.5%  196.4%
 MSCI ACWI ex US    -0.9%  4.7%         9.7%   11.7%  33.1%  98.2%

 

Manager's Comment

 

AVI Global Trust (AGT)'s NAV increased +0.8% in April

 

Hipgnosis Songs Fund ("SONG") was the standout performer, adding an estimated
+277bps to your company's NAV. We expand on this further below but we believe
such returns are testament to the value that can be added through activism,
and AVI's positioning in the London-listed closed-end fund market.

 

Performance from the rest of the portfolio was modest in a tougher month for
equities. News Corp cost us -58bps as the discount widened to 42% from 38%,
whilst FEMSA and IAC detracted -39bps and -31bps, respectively.

 

Hipgnosis Songs Fund

On 18-Apr-24, Concord - a music rights firm backed by Apollo - announced a
binding offer for SONG at a price of $1.16-$1.18 per share. Blackstone, the
majority owner of Hipgnosis Songs Management (HSM, the Manager of SONG)
responded just two days later with a bid of $1.24. Concord then pipped this by
1c, followed by Blackstone raising their bid to $1.30. Given Concord have
subsequently confirmed they will not be improving their offer, it seems highly
likely that Blackstone will prevail with their $1.30 bid which represents a
premium of +47% to the undisturbed share price.

This marks the end of a highly successful investment for AGT, in which we
played a key role in fighting off the proposed related-party sale of a portion
of SONG's catalogues and also making the case against the company continuing
in its present form
(https://www.assetvalueinvestors.com/content/uploads/2023/10/AVI-Public-Letter-SONG.pdf)
. Resolutions proposing each matter were heavily defeated at shareholder
meetings. With two directors resigning on the eve of the AGM and the
then-Chairman suffering a resounding vote against his re-election, we and
other shareholders engaged with the remaining rump to push for the appointment
of two new directors - Robert Naylor and Francis Keeling - who had just
stepped down from SONG's peer company, Round Hill Music Royalty Fund,
following its acquisition by Concord. Both were appointed with Robert
immediately installed as Chairman. Christopher Mills then joined the Board a
month later.

The events and news-flow since then are beyond the word count constraints of
this newsletter but suffice to say, we are happy with an outcome that has not
only generated a very strong return for AGT's shareholders but has
demonstrated again both the value of shareholder activism and the critical
importance of having the right people on Boards. The new directors joined the
company at a time of crisis and engineered an excellent outcome for
shareholders in a timeframe few would have felt possible at the time of their
appointment. With no viable future as an ongoing listed vehicle, the key task
facing the new appointees was how best to generate competitive tension in a
situation where, under the terms of the Investment Management Agreement, the
Manager had a call option allowing them to purchase the portfolio in the event
of their termination. The investigatory work conducted by the Board and their
advisors, some of the fruits of which were made public
(https://www.hipgnosissongs.com/wp-content/uploads/2024/04/HSF-Valuation-and-Diligence-Presentation_FINAL.pdf)
, led to an understandable perception that there existed more than sufficient
grounds to terminate the Manager "for cause", which would invalidate the
option.

We think it likely that this, alongside other measures introduced by the
newly-reconstituted Board, gave Concord the confidence to make their initial
bid and resulted in a higher price ultimately being achieved for the company
than would otherwise have been the case. We applaud the new directors'
fortitude and shrewd handling of a highly complex situation.

 

Princess Private Equity

 

Our Aug-23 newsletter
(https://www.assetvalueinvestors.com/content/uploads/2023/09/AGT-AUGUST-2023.pdf)
discussed (and praised) Pantheon International ("PIN")'s new capital
allocation policy and associated large share buyback programme, and its wider
implications for the listed private equity and broader alternatives sectors.
We await the finer details of the policy, set to be announced within the next
few weeks, with interest.

 

One of our other large positions in the listed private equity sector, Princess
Private Equity ("PEY"), recently followed suit with a clearly defined capital
allocation policy of its own that was met with a warm reception from industry
participants. One prominent sell-side analyst correctly identified it as "the
most structured capital allocation policy…in the listed PE space" and
"reflect ing  the inconvenient truth for many managers that buying back shares
when the shares are on wide discounts is likely to be considerably more
accretive for shareholders than making new investments." 1 

PEY is a London-listed closed-end fund that offers access to direct private
equity investments made by Partners' Group, the Swiss-listed private capital
manager with $150bn of assets under management. PEY's new policy will see 75%
of free cash flow steered to buybacks when PEY's discount is wider than 30%;
50% when the discount is between 20% and 30%; and with the Board emphasising
that they reserve the right to buy back shares at discounts below 20%. This
share repurchase programme is additive to the existing high dividend policy
that targets a total annual pay-out (paid in two semi-annual instalments)
equivalent to 5% of the previous year's closing NAV. At the current share
price, this not only represents an attractive yield on share price of 6.7% but
is materially accretive for shareholders given it represents a return of
capital at a zero discount (versus PEY's current 25% discount). Recognising
their importance to shareholders, the buyback programme ranks behind these
dividend payments (i.e., the free cash flow metric used to determine the
allocation to buybacks is net of dividends).

PEY's dividend yield had helped keep its discount relatively narrow until cash
outflows from their FX-hedging programme forced a suspension of the dividend
in late-2022. We built our position - reaching a 10% stake - in the wake of
the sell-off that followed, sensing an opportunity to engage with the Board
and Manager to resolve various governance issues we believed to be the
underlying root cause of the dividend suspension and the botched shareholder
communications surrounding it.

Although the dividend was soon restored, the then-Chairman and the Partners
Group representative on the Board resigned on the eve of the AGM that followed
these events, thus avoiding their public defenestration at the hands of
shareholders. Following further engagement with the remaining directors, we
were pleased with the appointment of private equity veteran Peter McKellar as
Chairman in Nov-23 and were confident his vast experience of the listed
private equity market would be of huge benefit to the company. While the new
capital allocation policy is a critically important development (and we also
welcome the strengthening of the Board with further appointments, and the
proposed renaming of the Company to capitalise on the Manager's profile),
there remains more work to be done to better align fees with shareholder
outcomes, improve disclosure, and re-invigorate investment returns.

As with our investment in SONG described above, we believe the changes at PEY
demonstrate the value that can be added through shareholder engagement and
further emphasise the importance of a strong Board.

While there are several reported exit processes under away at some of PEY's
larger investments, we were pleased to see one that had not previously been
flagged come through when it was announced in early-April that the company's
second-largest holding, building products specialist SRS Distribution, is to
be acquired by home improvement behemoth Home Depot at a valuation almost +30%
above where it was carried in PEY's previous NAV.

Contributors / Detractors (in GBP)

 

 Largest Contributors             1- month contribution  % Weight

                                  bps
 Hipgnosis Songs                  277                    8.2
 Symphony International Holdings  30                     2.3
 GCP Infrastructure Inv           14                     2.6
 Nihon Kohden                     11                     2.7
 Pantheon International           9                      3.8

 

 Largest Detractors  1- month contribution  % Weight

                     bps
 News Corp           -58                    6.6
 FEMSA               -39                    4.4
 IAC                 -31                    2.8
 Schibsted ASA 'B'   -28                    4.0
 KKR                 -20                    2.9

 

 

Link Company Matters Limited

Corporate Secretary

 

15 May 2024

 

LEI: 213800QUODCLWWRVI968

 

The content of the Company's web-pages and the content of any website or pages
which may be accessed through hyperlinks on the Company's web-pages, other
than the content of the Newsletter referred to above, is neither incorporated
into nor forms part of the above announcement.

(#_ftnref1) 1 J.P.Morgan Cazenove, Investment Companies Daily, 25-Mar-24

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