Australian Listed Investment Company Report – July 2024

This story features WAM ALTERNATIVE ASSETS LIMITED. For more info SHARE ANALYSIS: WMA

Download related file: IIR-Monthly-LMI-Update_-3-July-2024

A Listed Investment Company (LIC) is a listed investment vehicle that offers investors access to a diversified portfolio of shares in other companies also listed on the stock market. Also known as Listed Investment Trusts or Listed Managed Investments.

For comprehensive comparative data tables for LICs, and more sector news, please see the PDF document attached.

IIR LMI Research
WAM Alternative Assets Limited ((WMA))
During the month we completed a review of WAM Alternative Assets Limited. WMA provides exposure to a portfolio of alternative assets including private equity, real assets, real estate, infrastructure and private debt strategies. The Company seeks to gain exposure to these asset classes through a range of structures including funds, co-investments, secondary investments and separate mandates.

The Company seeks to deliver absolute returns through a combination of dividends and capital growth, while providing diversification benefits to investors.

The portfolio is managed by Wilson Asset Management (International) Pty Ltd (“WAMI” or the “Manager”), which forms part of the Wilson Asset Management Group. WAMI has now been managing the portfolio for over three years after being appointed in September 2020 by shareholders and officially commencing as Manager in October 2020.

Since taking over the management of the portfolio, WAMI has employed an amended investment strategy with the Manager seeking to realign the portfolio with the broad macroeconomic trends identified by the Manager and adding additional asset classes to increase the diversification in the portfolio.

The transition of the portfolio has taken time as a result of the illiquid nature of the portfolio of investments that was inherited from the previous manager. The Manager has now exited 11 investments, with a significant partial redemption from the Argyle Water Fund, which remains the largest investment in the portfolio. The Manager has reinvested the capital into 11 new investments, including expanding the portfolio into healthcare real estate, infrastructure and private credit. Almost 70% of the committed capital to these investments has been called with the remainder sitting in cash waiting to be called.

The remaining inherited investments (which represent approximately 25% of the portfolio) are expected to be fully exited by the end of FY26. The Company pays a management fee of 1.0%p.a. (excluding GST) to the Manager and there is no performance fee.

The fund of fund structure means there is a double layer of fees, however we note the Company provides access to institutional style fees.

IIR maintains its Investment Grade rating for WMA. Since taking over the management of the portfolio, WMA has made significant strides in recycling capital into new investments that provide exposure to a diversified portfolio of alternative investments not readily accessible to retail investors. The Portfolio Manager has a significant amount of experience in alternative assets however is still building up a track record with regards to this vehicle with almost all exits to date being investments made from the previous manager. Further to this there is high levels of key man risk surrounding the Portfolio Manager.

We expect the Manager to add personnel when they are in a position to grow the company, which will require to discount to be eradicated. With regards to the discount, at this time we do not see a catalyst that will result in the Company re-rating to NTA. As such we would be expecting the Company to be required to provide shareholders the opportunity to liquidate the Company at the 2025 AGM. Given this, we view there to be significant risks for investors at this time. If a vote did occur and shareholders voted in favour of liquidating the Company, the portfolio would go into “run off” with capital being repaid as investments were able to be exited.

While liquidity in the portfolio has improved, there has been a number of recent private equity investments which would likely take some time to be realised. We believe this risk is being factored into the trading price of WMA. The removal of the risk surrounding the longevity of the vehicle will be a key inflection point for the Company.

For comprehensive comparative data tables for LICs, and more sector news, please see attached.

Independent Investment Research, “IIR”, is an independent investment research house based in Australia and the United States. IIR specialises in the analysis of high quality commissioned research for Brokers, Family Offices and Fund Managers. IIR distributes its research in Asia, United States and the Americas. IIR does not participate in any corporate or capital raising activity and therefore it does not have any inherent bias that may result from research that is linked to any corporate/ capital raising activity.

IIR was established in 2004 under Aegis Equities Research Group of companies to provide investment research to a select group of retail and wholesale clients. Since March 2010, IIR (the Aegis Equities business was sold to Morningstar) has operated independently from Aegis by former Aegis senior executives/shareholders to provide clients with unparalleled research that covers listed and unlisted managed investments, listed companies, structured products, and IPOs. IIR takes great pride in the quality and independence of our analysis, underpinned by high caliber staff and a transparent, proven and rigorous research methodology.

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This publication has been prepared by Independent Investment Research (Aust) Pty Limited trading as Independent Investment Research (“IIR”) (ABN 11 152 172 079), an corporate authorised representative of Australian Financial Services Licensee (AFSL no. 410381. IIR has been commissioned to prepare this independent research report (the “Report”) and will receive fees for its preparation. Each company specified in the Report (the “Participants”) has provided IIR with information about its current activities. While the information contained in this publication has been prepared with all reasonable care from sources that IIR believes are reliable, no responsibility or liability is accepted by IIR for any errors, omissions or misstatements however caused. In the event that updated or additional information is issued by the “Participants”, subsequent to this publication, IIR is under no obligation to provide further research unless commissioned to do so. Any opinions, forecasts or recommendations reflects the judgment and assumptions of IIR as at the date of publication and may change without notice. IIR and each Participant in the Report, their officers, agents and employees exclude all liability whatsoever, in negligence or otherwise, for any loss or damage relating to this document to the full extent permitted by law. This publication is not and should not be construed as, an offer to sell or the solicitation of an offer to purchase or subscribe for any investment. Any opinion contained in the Report is unsolicited general information only. Neither IIR nor the Participants are aware that any recipient intends to rely on this Report or of the manner in which a recipient intends to use it. In preparing our information, it is not possible to take into consideration the investment objectives, financial situation or particular needs of any individual recipient. Investors should obtain individual financial advice from their investment advisor to determine whether opinions or recommendations (if any) contained in this publication are appropriate to their investment objectives, financial situation or particular needs before acting on such opinions or recommendations. This report is intended for the residents of Australia. It is not intended for any person(s) who is resident of any other country. This document does not constitute an offer of services in jurisdictions where IIR or its affiliates do not have the necessary licenses. IIR and/or the Participant, their officers, employees or its related bodies corporate may, from time to time hold positions in any securities included in this Report and may buy or sell such securities or engage in other transactions involving such securities. IIR and the Participant, their directors and associates declare that from time to time they may hold interests in and/or earn brokerage, fees or other benefits from the securities mentioned in this publication.

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