<< Summary: Vgi Partners Global Investments (VG1) launched its $550m LIC in Sep 2017. In part this was off the back of some high profile short-selling battles: Slater and Gordon and Corporate Travel Management. Long-short funds sound attractive to many retail investors who consider themselves to be getting access to greater sophistication and better risk-adjusted returns.
In reality, long-short funds and hedge funds have terrible performance (average and median) after expenses. This is largely due to their inflated Total Expense Ratios, where high costs and fees detract from returns. Typically, investors are paying fund managers to make different types of bets (sectors, timing, short selling, currency), but the outcome is heads they win, tails you lose. Nevertheless, retail investors eagerly jumped into VG1's $550m IPO and 2019 $300m capital raising.
VG1's performance started ok (and it traded at a premium), but performance then quickly fell away, and in the subsequent six years, only FY 2020-21 was successful. Overall, from 30 Sep 2017 to 19 Oct 2023, VG1 has delivered an appalling Total Shareholder Return of -0.34% annualised compared to 11.48% for VGS.
Since 2020 there have been multiple attempts to resolve VG1's discount via buybacks, increasing franked dividends, a merger of VGI Partners and Regal, and activism to wind-up or convert to an open end structure. And, once again, VG1 is in the news with Saba Capital (a Closed End Fund discount activist) quickly building a 6% stake.
In this post, I focus on how enormous the holding costs can be of trying to capitalise on ASX CEF discounts, or the potential for them to finally provide an exit at NTA. VG1 is a perfect case in point, with massive underperformance, a significant Total Expense Ratio, and no feasible way to hedge out the exposure. >>
VG1 Price at posting:
$1.56 Sentiment: None Disclosure: Not Held
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