When will Blue Sky’s horror run come to an end?
In March, US hedge fund, Glaucus, went short on Blue Sky Alternative Investments (ASX:BLA) due to what it perceived as exaggerations in the fund manager’s fee-earning assets under management. Since then, things have gone from bad to worse for BLA investors. And the bad news shows no signs of abating.
Three weeks since the last underlying earnings downgrade, by 36 per cent to a mid-point of $22.5 million for the year to June 2018, the Board of Directors have withdrawn their guidance, “by taking prudent account of recent developments”.
In addition, Chairman John Kain has announced he is throwing in the towel. Alexander McNab will retire from the Board effective immediately as well as from his role as Chief Investment Officer. And Executive Director Tim Wilson will retire from the Board but remain as Managing Director of Blue Sky’s Private Equity business.
Meanwhile, over at AMP, newly installed Chairman, David Murray, is on the look-out for some Directors following the departure of Catherine Brenner, Vanessa Wallace, Holly Kramer and Patty Akopiantz. It’s raining Board renewal!
But back to Blue Sky, where the company expects to complete the sale of 4-5 (of its 80) investments prior to 30 June 2018. In the case of Foundation Early Learning (FEL), it stated that “it is estimated that the sale proceeds will represent a discount to carrying value of between approximately 14-23 per cent”.
One thing that has become clear is the $4.0 billion of assets under management includes $380 million of drawn debt and $764 million of undrawn debt. Private Equity accounts for $558 million or 14 per cent of the gross assets, Real Assets (mostly agricultural) accounts for $885 million or 22 per cent, Private Real Estate accounts or $2.0 billion or 50 per cent, and the balance accounts for $567 million or 14 per cent. Readers should be aware that over 85 per cent (or $981 million) of the $1,144 million of drawn and undrawn debt is against assets in the Private Real Estate division.
And a final piece of insight – the company is adjusting its fixed costs so that recurring management fees exceed them. We await the audited results to June 2018, and the guidance for Fiscal 2019, given the introduction of AASB 15 Revenue from Contracts with Customers will see revenue (and performance fee) recognition more closely align with the “cash basis” of accounts. Interestingly the Blue Sky performance fees have averaged $17 million since Fiscal 2014. In the past, Blue Sky has accounted performance fees on an accrual basis rather than cash basis and this lack of conservatism promotes a highly fluid situation for earnings guidance.
You can read previous posts on Blue Sky Alternative Investments below:
Four months can be a long time in the share market
Chief Executive Officer of Montgomery Investment Management, David Buckland has over 30 years of industry experience. David is a deeply knowledgeable and highly experienced financial services executive. Prior to joining Montgomery in 2012, David was CEO and Executive Director of Hunter Hall for 11 years, as well as a Director at JP Morgan in Sydney and London for eight years.
This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.
