What can be done to reduce the NAV discount and provide liquidity?

Summary: E&P argue the massive discounts CD1. CD2 and CD3 have traded at are unresolvable in their current structure due to the reputation overhang from the rapacious losses that URF and New Energy Solar investors suffered under the prior incarnation of Dixons Advisory.

This is completely false. The discounts are resolvable if the CD funds were professionally managed due to the commendable performance of the vast majority of US private equity firms the Cordish family partnered with.

E&P have done none of the obvious steps to reduce the discount

Details:

Instead of wasting millions pursuing buyouts at deep discounts or working on the secret merger proposal they didn't even sound out any investor on, E&P could have:

1. Promoted the performance of these funds and marketed them to new investors, especially given the deep discounts.

2. Taken every opportunity to proactively communicate (especially to existing investors who've been selling at huge discounts) the key advantage of these funds is that they self-liquidate at NTA unlike any other closed-end fund on the ASX. And emphasize that CD1 and CD2 are in full wind-down liquidation phase and CD3 is close behind. Given the Dixon Advisory debacle E&P has been involved in, the least it can do is try and prevent even deeper losses for these investors (most of whom are retirees who were taken advantage of).

3. Made the return of capital and distributions to CD1, CD2 and CD3 investors as quick, efficient and transparent as possible.

4. Published the percentage cash balances in CD1, CD2, CD3 in each monthly report at fund level as well as the higher level that includes cash realised by the PE firms but yet to be returned.

5. Ever since funds moved into wind-down phase, run continuous (and fully-utilised) 10%/year buybacks allocating part of the cash to add liquidity for investors seeking an exit while being NAV accretive. 

6. Published accurate, monthly information on the remaining investments in each fund, allocations to each PE firm, and current carrying values compared to invested funds (including the date valued). Also, specific to each fund, the realised value versus last carrying value for all exits.

7. Published details of all current portfolio companies in each fund. Name, ballpark carrying value compared to invested funds, company website, significant news, etc.

8. Highlighting the advantages of the current structure such as the fact the funds stop paying most of their fees once in liquidation phase. CD1 has already ended these fees and CD2 ends in Feb 2023.


This blog exists precisely because E&P has failed to do these things. In many cases it has done the opposite - such as not clearly disclosing significant cash levels and refusing to return it till it tries to get its merger voted up that prevents further cash distributions.

Many investors might conclude E&P has failed deliberately to reduce the discount, in order to then propose a "solution" that traps over $300 million in assets it can charge fees on indefinitely.

Popular posts from this blog

What are Wilson Asset Management's intentions for the CD Funds?

Image
Summary : On 9 June 2023, a Wilson Asset Management fund - WAM Strategic Value - posted a media release advising it is voting No to the proposal for KAM to take over as responsible entity of the CD Funds. WAR disclosed it owned CD1, CD2 and CD3 and wants divestment and return of capital expedited. In this post, I provide further details of WAR's CD Fund holdings and discuss WAM's options and possible intentions regarding the CD Funds. If WAM is playing chess; who is playing checkers?
Read more

E&P vultures hide the CD Funds carcass but will it work?

Image
Summary : The AFR recently revealed the latest material information E&P hadn't disclosed to investors: that Pengana Capital has made two bids for the CD Funds and is very keen on consolidating them into its ASX private equity fund PE1 . E&P not only rejected the proposals and prevented due diligence, but kept everything secret from investors, perhaps hoping Pengana would give up and no other would-be predators would be aroused. E&P seems to think it owns the funds to run for its own interests; "captive capital" indeed! Investors need to contact their CD Fund Directors to insist that merger proposals are actively encouraged in a competitve and transparent way that reaches the best feasible outcome for shareholders (not E&P). CD Fund investors voted overwhelmingly against the proposals put forward by E&P and the current Directors. Investors will obviously need to keep the pressure on and, ultimately, the current Directors may need to be replaced if no...
Read more

A rolodex of the firms with an interest in the CD Funds

Image
Summary : With all of the recent machinations, I've decided to maintain a single blog post listing all of the firms with an interest in the CD Funds. There are various intentions: from passively riding the discount opportunity to active interest in clipping some part of the ticket. My main motivation in informing CD Fund shareholders is that they actively organise and advocate for their own interests: such as blocking adverse restructures (e.g. E&P's attempt to convert to an evergreen mashup fund); seeking mergers/exits at fair but not desperate prices (e.g. Pengana's PE1 proposals); extracting timely concessions (e.g. from K2 Asset Management in taking over as responsible entity); or encouraging institutional owners (e.g. WAM) to build stakes and speed up divestment and distributions. New Site : I now run a site dedicated to eliminating almost all ASX Closed End Funds. I maintain a post on the CD Funds on that site. See: >  Captive Capital Patience and vigilance rem...
Read more