Metage Capital global fund promises higher returns from undervalued assets

Andrew Main – The Australian – June 17, 2014

METAGE CAPITAL GLOBAL VALUE FUND
ASX CODE: GVF
SHARES ON OFFER: 100 MILLION,
LISTING PRICE: $1 PER SHARE, WITH ONE FREE $1 MARCH 2016 OPTION
MARKET CAPITALISATION: $100 MILLION
LISTING DATE: mid to late July

WEALTH has previously interviewed London-based expat Sydneysider Miles Staude about the Metage Capital group, which specialises in finding undervalued listed assets and stirring up management, spilling boards and other such fireworks.

Staude wasn’t giving a lot away back in March when he came to Sydney, but he has now unveiled a licensed investment company called Metage Capital Global Value Fund, to be based here but invested worldwide. The fund aims to do exactly the same sort of activist investor moves.

While Staude is going to be the fund manager, he has persuaded investment gurus Geoff Wilson of Wilson Asset Management and Chris Cuffe to join the fund’s board.

The chairman will be Sydney lawyer Jonathan Tollip.

This is one of those “trust us’’ situations, given that there’s no exact track record.

But the related Metage Emerging Market Opportunities (MEMO) Fund started in 2000 has had a gross return of 18.9 per cent a year since inception.

That’s 587 per cent, as the prospectus points out, against an equivalent performance of 182 per cent over the same period by the Dow Jones Credit Suisse Emerging Markets Hedge Fund Index.

Note, however, that this new fund will be “long only’’ unlike the MEMO fund, so its performance may not be quite so exciting. However, with the stated intention of turning the portfolio every 12-18 months, it intends to pay out a healthy fully franked yield.

Metage has about $230 million under management. This one aims to buy listed international securities and in particular closed-end funds trading at a discount to their underlying value.

Taylor Collison will act as lead manager to the offer and there will be a priority offer for WAM’s (Wilson Asset Management) eligible participants, for instance shareholders in WAM Capital, although they will be limited to $40m worth.

Note that Metage will issue “up to” 100 million shares but that could be construed as a target and in fact there’s a minimum subscription of 16 million shares.

There are inevitably risks in such investments, but there’s a lot of security in the notion of buying a notional dollar for, say, 70c in any jurisdiction then sticking around with the laudable aim of realising a profit.

The prospectus also points out that SMSFs here only have about 1 per cent of their assets invested offshore and that our equity market is trading at an 11 per cent premium to its five-year average forward PE ratio.

“In the manager’s opinion, Australian equity valuations appear stretched. However, an attractive universe of assets remains available offshore,’’ it states, with neat use of carrot and stick.

“The returns from offshore ­assets would also be enhanced by any decrease in the Australian ­dollar.’’

You can’t argue with the logic, even if there are risks of all sorts lurking in the undergrowth.

Miles Staude of Staude Capital Limited in London is the Portfolio Manager at the Global Value Fund (ASX:GVF). This article is the opinion of the writer and does not consider the circumstances of any individual. Mirabella Financial Services LLP is the investment manager of the Global Value Fund and has seconded the investment team at Staude Capital to manage the Global Value Fund.