Ann: 1H FY2021 Results and Investor Presentation, page-9

Hi Gharp

Thanks for taking the time to read my posts, keen to hear feedback and get further questions. It is always good to have a different persepctive. Everyone on the PAC board here make great contributions and is good to bounce ideas around to get to the bottom of what is going in PAC (the good, the bad and the ugly). Doesn't matter whether you are invested or not.

Regarding revenue generation, it varies from fund to fund and whether they deliver as expected. Here are some examples:

• Carlisle: PAC invested $USD34.25M on the basis of receiving 16% of revenues and has an economic interest of 40% equity in the event of a sale. The expectation at the time is we would be receiving $US6M per annum (see announcement here: https://paccurrent.com/wp-content/uploads/2019/01/Carlisle-Investor-Presentation.pdf)
• Pennybacker: PAC invested up to $US27.5M ($US20M direct investment and $US7.5M in earn out provisions) on the basis of receiving 16.5% of Net Income and 2.5% of carried interest for new funds/accounts (see announcement here: https://paccurrent.com/wp-content/uploads/2019/11/PAC-Invests-in-Pennybacker-Capital-Management.pdf)
• VPC: PAC invested $USD70M on the basis of receiving $US7M per annum (assuming growth targets would be achieved in 2019). The investment bought a 24.9% equity interest and distribution based on VPC management discretion (see announcement here: https://paccurrent.com/wp-content/uploads/2018/07/InvestmentVictoryParkCapital_InvestorPresentation.pdf) Also note VPC contribution through 2019 and 2020 here:
• PAC 2019 Annual Report (Note 23)

• PAC 2020 Annual Report (Note 22)

As you can see with VPC and PAC, reporting has been pretty good since 2019 (no accounts have been restated yet). It is also clear VPC has not delivered dividends as expected ($USD7M) since original investment, however the total comprehensive income (if representative of 24.9% share) delivered 45+% more in Year 2 than original investment thesis ($A9.5M expected, grown to $A13.8M in 2020)

The question for me here is, does the Comprehensive Income represent PAC's share of Comprehensive Income (therefore investment is delivering significantly more than expected, just not paying dividends) OR is it the total VPC and VPC-holdco business.

If comprehensive income is representative of PAC's share then we are looking at significant comprehensive income attributable to PAC (just not getting paid out). This is not 19 (b) in half year report:


It is the above agreements and detail that makes it more complex to track PAC revenues against other Fund Managers. It definitely isn't straight forward to us Aussies, but this is the nature of the US Fund Management market and shows the need to over read PAC's annual reports. Most investors definitely don't read in much detail, however there is something more to PAC and I am hoping will eventually come out in the long term.

My reading could be incorrect too, so happy to be corrected.

If we were to write a thesis on each investment, it doesn't mean it will generate reported returns and reflect in the share price. While the VPC example shows it is generating Income above expectations, it just returning it all to PAC. This is the nature of investing in early stage fund managers (starting up and in high growth business phase). Bottom line, will investments generate income/PAC revenue immediately or will it take a few years to grow, re-investing income/PAC revenue? VPC defintely re-investing during its high growth phase.

The nature of PAC is not well understood and not sold well by management. It is a long term investor in boutique Fund Managers and will hold for periods of ten years plus to generate a mix of exponential capital growth and grow income until maturity where dividends will be paid to PAC.

Private Equity is very hard to value in the short term and market defintely doesn't like the lumpiness - highs of $8+ in Aug/Sep 2017 (pre-sale of Investors Mutual) and lows of 2016, mid-2019 and early 2020 (post takeover decline, COVID, etc). Blue Sky did a lot of damage to Private Equity listed plays on the ASX as valuations are very subjective.

Meanwhile down at the pub or BBQ this long weekend, I would basically say that PAC has a lot of unrealised revenue and income off balance sheet (as opposed to Macquarie Bank and Greece with debt off balance sheet). This is realised over the long-term in asset sales or delayed revenue and sellers today will not see what they are owed tomorrow. Hard to see, but you have to read through the notes. Management aren't going out of their way to sell the story, it is much easier to invest in PNI or PTM.

In regards to your post, you are correct Boutique/Private Equity Fund Managers have the right to withhold income and not pay dividends, dependent upon the original investment agreement. The market isn't that liquid for poor performing Fund Managers (Seizert=poor, Aperio and Investors Mutual=good). It does make it hard to value on an annual basis. I think longer time horizons or timing is required for PAC and the level of complexity ensures most don't want to invest in PAC, leading to lower demand for shares (increasing volatility as per @peejay2's post, not lost ).

I was expecting a better year this year, but half year not giving market confidence. Will wait and see, still hopeful for the full year (see @gregfloorworld's posts too), all it will take is a dividend increase of $2.5M from one of the boutique's and we have restored earnings for the year. More than this from a Special Situation at VPC like the SPAC's and revenue will blow out (possibly by 25% year on year). Such is the nature of PAC, volatile

Best of Luck
Lost