The VGI Partners LICs are at a crossroads. By the end of March, they have promised to announce the results of a review on removing the discount to NTA that has persisted for some time. Unusually, the review is being conducted by the manager, not by independent Directors. The process has been ongoing for more than three months and has coincided with the listed manager (VGI) announcing a tentative agreement to merge with another fund manager, Regal. In our view, the key problem sustaining the discounts is that the underlying portfolio performance for VG1 and VG8 has been very poor.
Unfortunately, this has meant that while investors wait for a response from the manager to close the discount, the NTA has continued to fall. There is now a significant conflict between the manager and the interests of investors in the LICs. Management may well be motivated to maintain the level of FUM in VG1 and VG8 to maximise the outcome from any merger with Regal. For investors in VG1 and VG8, barring a stunning recovery in investment performance, the most desirable solutions would seem to involve either a wind-up, delisting, or merger of the LICs with another vehicle.
Those solutions are much more likely to result in a significant loss of FUM for the manager. If VGI recommends a path forward that does not allow investors an opportunity to exit at or very close to NTA, the likelihood of shareholder activism will increase substantially.
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