choices ahead, page-2

(1) if NTA is $2.58, why is price now around 80 cents?

Whilst I don't think the current discount is justified (I bought more at 90c), these are some of the factors IMO:
a. BNB is in need to cash and its selling (actual and potential) is keeping a lid on prices
b. Liquidity is demanding a very high premium in this market. Whislt I am happy to sit on the investment for 5 years, I suspect most are not comfortable with such a time frame or cannot afford to (eg BNB)
c. Many LICs are trading at discounts currently
d. Lack of transparency in hedge fund of funds at both FoF level and within hedge funds e.g. in other managed funds you could estimate the costs of hedging and therefore understand the impact of the dollar depreciation as it happens...in this case we find out via ASX announcement
e. Various hedge fund strategies rely on leverage and with credit being rationed some strategies will no longer exist and managers will go out of business...shouldn't result in loss of capital for EBI, but just more uncertainty
f. Whilst hedge funds have generally performed better than equities, many expected "absolute" returns which have not been experienced
g. Uncertainty regarding the court case
h. Thin trading

Bottom line, not a lot to be cheerie about with a combination of BNB selling and opaque structure resulting in a massive discount. Anyway, that's my thoughts/sentiment and not research.

(2) if NTA is reliable and EBI redeems some units in hedge funds for cash, won't NTA have less volatility going forward?

In theory, I would have thought that as funds are cashed in both market exposure and leverage should decrease resulting in lower volatility. But who knows what is happening inside this vehicle. For instance, with currency movements, the costs of hedges decreases cash and increases leverage.

In terms of NTA reliability - it is always stated as an estimate. There will be costs of exiting managers (eg break fees), swap structures etc. that I don't expect are currently factored into the NTA.

(3)if a new unlisted trust is established, won't the discount to NTA disappear? i.e. subject to giving adequate notice, unit holders could exit at close to NTA (given there will be a bid price and offer price)?

Not sure what will happen to trading price. What is the new information we now have:
- $2.58 NTA (another big negative month)
- costs incurred in hedging
- no 10% liquidity
- exiting some investments to generate cash
- investors will be able to choose between a wind up and new trust (but no detail on either)

The liquidity issues are unchanged, and may be worse for smaller holders. e.g. Under delisting access to 10% then 25%. What will be the liquidity conditions be for the new trust? And BNB is still a distressed seller.

Gut feel no significant improvement in price (ie stay below $1.50, if not well below ie under $1). Too much uncertainty.

However, maybe Laxey and co will buy more shares as they have more certainty regarding their exit...but can they afford to...most funds are suffering redemptions and need cash.

Anyone's guess!!!!

(4) if (3) is "yes", would it not be an arbitrage to buy EBI now and elect to convert to an unlisted trust?

The arbitrage has always been there. eg under delisting, you could stay in the trust...you were not required to exit. Now, however, we don't know what access we will have to liquidity.


Bottom line...still considerable uncertainty...discount is attractive...but so are the discounts on a lot of stocks on the market at the moment, yet less complicated. At the moment I think I will wait till we see the detail.