It's not clear what WAM might do going forward:- Build a greater...

It's not clear what WAM might do going forward:

- Build a greater holding in CD1/CD2/CD3 simply to benefit from the discount narrowing and the cheap exposure with less correlation to other assets. WAR alone has $58 million in cash (28%). WMA is 33% cash as well.

- Put pressure on the RE of the CD Funds to expedite distributions, realisation and wind down.

- Put forward a future proposal for a scrip-based merger (WMA would be a great candidate as it is focused on alternative assets including private equity).

- Support governance improvements such as internalisation of the responsible entity function.


However, safe to say that almost anything they do (including any of the above) is a positive for CD Fund share prices - either directly or indirectly.

If not shifting to KAM makes future WAM action more likely, then (all else being equal) that should be a significant factor in favour of voting NO to the KAM proposal. I have not heard sufficient positive committed action in the KAM proposal to override my current vote of NO.


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Geoff Wilson is setting up an eleventh-hour quarrel at E&P’s Cordish Dixon private equity funds. His listed investment company, WAM Strategic Value, wrote to unitholders in CD Private Equity Fund I, II and III on Friday morning. It urged them to vote against the proposal for K2 Asset Management to take over the responsible entity functions from E&P InvestmentsLimited, which is exiting RE services. (RE is a governance structure that looks after investors’ interests in a fund in return of a small fee).

Wilson’s letter said WAR would be voting its holdings against the responsible entity swap at CD I, II and III because it thought the K2 proposal was “not in the best interests of CD Fund unitholders” and urged others to follow its lead. The unitholder vote is scheduled for June 19 and would need support of 50 per cent of the register for K2 to come in.However, WAR only has 1 per cent to 2 per cent holdings in the three CD funds – which won’t be anywhere near enough to block the vote.The letter did not flesh out the reasoning, propose alternatives, or clarify if WAM wanted to make a tilt at the three funds itself.“ It is not the perfect scenario, but the status quo is better.

They [E&P] have been winding down the fund and paying the money back,” Mr Wilson said. “I don’t believe the change is in the best interest of shareholders.”K2 Asset Management, which has similar proposals at the E&P’s US Residential Property Fund, CD Fund IV and Venture Opportunities Fund, was selected after a tender process and has promised to lower fees and not stand in the way of the wind down.It already faces opposition at URF, where Fred Woollard’s Samuel Terry Asset Management has vouched to vote his 12.7 per cent against the RE change – and is campaigning for an internal RE.Sources said URF was an easy battle for K2 to lose, given its concentrated register. However, CD funds’ unitholder base was more fragmented and could prove to be easier to tame despite Wilson’s opposition, especially if E&P cheers its wealth clients in the register in K2’s direction.

Should K2 be successful at taking over the RE for six funds, it would add $1.68 billion of fee-earning assets to its RE unit. (RE fees are much lower. For example, K2 wants to charge 0.05 per cent of gross assets plus administration fees of 0.225 per cent of the gross asset value – a few basis points lower than the current structure).On the flip side, should Wilson’s push be successful in locking out K2, it is unclear what he would want to do next.Wilson’s next move unclearWilson declined to comment on what would be WAR’s next move at the three CD funds, should it be successful in blocking the vote to appoint K2.

His firm wouldn’t have the responsible entity structure to have put its own hat in the ring, sources said. But it’s only natural to expect a fight for management control from the camp, especially for higher-margin management fees.It has plenty of experience in taking over LICs that are performing or trading poorly, often using its own vehicles’ stronger scrip to mop up a smaller rival. It has done at least 11 such deals in the past five years, including Bennelong’s Absolute Performance Equity Fund.The playbook extends to private markets funds. In July 2020, it won the management rights for the ASX-listed $200 million odd Blue Sky Alternatives Access Fund after an 18-month-long slog.

The Cordish Dixon funds all cut cheques to underlying PE managers, mostly in the Unites States. Fund IV, for example, has money out with Wavecrest Growth Partners, Incline Equity Partners, Tower Arch Capital and Quad Partners, among others.Their investors have long suffered from traded share prices that are lower than the underlying value. Several solutions have been tried over the years, including a merger and delisting put forward by E&P and roll-up attempts from Pengana Private Equity Trust.Wilson’s interest in the saga suggests another iteration may not be far off.
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