Fundie wars: Activists target Rob Luciano’s VGI Partners
Sarah Thompson, Anthony Macdonald and Tim Boyd
Apr 5, 2021 – 9.35pm
Investment bankers turned activist investors David Kingston and Malcolm McComas have their blowtorches aimed at Rob Luciano’s high profile Australian hedge fund VGI Partners.
Street Talk can reveal the activists have blasted VGI Partners’ fee structure and poor interaction with retail investors, saying both had helped create an expensive gap between one of its funds’ investment performance and unit price.
VGI Partners' Robert Luciano. James Brickwood
Fresh from successful campaigns at Village Roadshow, Ellerston Capital and the Watermark-managed Australian Leaders Fund, the duo sent a letter outlining their concerns to VGI Partners and followed it up by meeting two of the company’s directors, David Jones and Doug Tynan. There’s another letter expected shortly for the targeted fund’s investors.
The activists’ focus is on the ASX-listed VGI Partners Global Investments Ltd (VG1), which is a $1 billion vehicle run by Luciano and mirrors the firm’s flagship long/short global equities strategy.
VG1 listed on the ASX in September 2017 and is aimed at retail investors; the manager had previously invested on behalf of wealthy families and high net worth clients, keeping its affairs away from the ASX’s bright lights.
The listed fund had net assets worth $2.57 a unit, or about $1 billion, last week, while the stock last traded at $2.17. It meant any investor that owned VG1 units, including Kingston and/or McComas, would have to accept about a 15 per cent discount to sell out.
It is understood the pair blamed the hefty discount on VGI’s failure to connect with retail investors and retail advisers, who make up a substantial portion of the listed investment company buyer pool. Firm founder and portfolio manager Luciano is not known for dazzling performance at investor briefings, which can be necessary to fuel investor appetite.
They also took aim at the fund’s charges. The listed fund charges a 1.5 per cent a year management fee and a flat 15 per cent (plus GST) of all performance in each six month period, subject to a high watermark mechanism. There is no benchmark or hurdle before the performance fees kick in.
The fee is higher than similar global equities funds trading on the ASX. The Magellan Global Fund, for example, charges 1.35 per cent plus a 10 per cent performance fee for returns in excess of the MSCI World Net Total Return Index (AUD) or the yield on 10 year Australian government bonds,whichever is higher. VGI would argue it’s consistent with the firm’s unlisted fund and less than hedge funds globally. A recent Goldman Sachs survey found hedge funds globally collected a 1.51 per cent management fee and 17.2 per cent performance fee, in the eight years to 2020.
Bankers on board
VGI, the manager, and VG1, retained Moelis & Co Andrew Pridham and gunslinger lawyer Jeremy Leibler, from Arnold Bloch Leibler, for advice. It is understood Leibler has already shot a letter across to Kingston and McComas. Jones is VG1’s executive chairman and a VGI executive director. Luciano is VGI executive chairman and a VG1 director.
VG1 listed in September 2017 and its portfolio returned 8.4 per cent in the year to December 2020 post tax, on an NTA basis, and 9.2 per cent net of fees since inception. It targets 10 per cent to 15 per cent annual return over the longer term.
VGI told investors in February it was working to enhance adviser relations and shareholder communication, while it has been buying back shares since September to try to close the discount.
(20min delay)