REG - AVI Global Trust PLC - Monthly update

AVI Global TrustAnnouncement

18/05/2022 17:45

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RNS Number : 0127M  AVI Global Trust PLC  18 May 2022

 

AVI GLOBAL TRUST PLC

 

Monthly Update

 

AVI Global Trust plc (the "Company") presents its Update, reporting
performance figures for the month ended 30 April 2022.

 

This Monthly Newsletter is available on the Company's website at:

https://www.assetvalueinvestors.com/agt/content/uploads/2022/05/AGT-APR-2022-1.pdf
(https://www.assetvalueinvestors.com/agt/content/uploads/2022/04/AGT-MAR-2022.pdf)

 

Performance Total Return

 

This investment management report relates to performance figures to 30 April
2022.

 

                     Month  Fiscal Yr(*)  Calendar Yr

                            to date       to date
 AGT NAV(1)          -2.9%   -1.6%        -7.6%
 MSCI ACWI Ex US(2)  -1.7%  -3.1%         -4.4%
 MSCI ACWI(1)        -3.5%   -0.3%        -6.1%

( )

1 Source: Morningstar. All NAV figures are cum-fair values.

2 From 1st October 2013 the lead benchmark was changed to the MSCI ACWI ex US
(£) Index. The investment management fee was changed to 0.7% of net assets
and the performance related fee eliminated.

* AVI Global Trust financial year commences on the 1stOctober.  All figures
published before the fiscal results announcement are AVI estimates and subject
to change.

 

Manager's Comment

 

AVI Global Trust (AGT)'s NAV declined -2.9% in April as the portfolio weighted
average discount widened 210bps to 30.5%.

 

Pershing Square Holdings, Sony, IAC and alternative asset managers Apollo
Global Management and KRR were the notable detractors. Symphony International,
Third Point Investors and Godrej Industries contributed positively.

 

Inflation and central banks' attempts to quell it remain the issue of the day.
Rising bond yields and the re-pricing of risk has led to significant
corrections in more Icarian parts of the markets. Whilst the impact at the
equity index level had remained relatively muted, it is starting to become
more meaningful. Volatility and uncertainty remain high. Investors are also
increasingly concerned about global growth - with risks from central banks
tightening too fast, continued lockdowns in China and the on-going war in
Ukraine. Investors aren't short of things to worry about.

 

As is to be expected in such a risk-off environment, discounts have been
widening, acting as a headwind to performance. This can be seen in a number of
detractors over the month, notably Pershing Square Holdings, Sony and IAC.

 

Having reduced gearing last Autumn we have firepower to add to new and
existing names, but so far we have been purposefully inactive. We remain
optimistic about the long-term prospects of the high quality, well manged and
lowly geared collection of companies we have assembled.

 

KKR and Apollo:

KKR & Co and Apollo Global Management were two of the largest detractors
from performance in April, shaving a combined -99bps off AGT's NAV as the
shares declined -13% and -20%, respectively. We wrote last October that
"Driven by persistently strong results, we believe the wider market has begun
to better appreciate the high quality characteristics of companies operating
within the alternative asset management industry, and the secular tailwinds at
their back that we believe are likely to drive growth long into the future."

 

Well, if indeed the market had come to appreciate this fact, no sooner was it
learnt than it was forgotten. Shares in KKR and Apollo are both down -31% year
to date, with other alternative asset managers suffering similar declines.
Share price performance suggests investors view alternative asset managers as
high beta plays on risk assets; we however contend that such an obtuse view
ignores the defensive characteristics of scale-advantaged managers, and the
structural growth trends the industry exhibits.

 

The current assets under management ("AUM") that alternative asset managers
have is for the most part long-term or even permanent and so the risk of
redemptions is very limited, while the proportion of fees earned on
mark-to-market equity AUM is also very low; future AUM, i.e. AUM growth could
in theory be affected of course, but the secular drivers towards greater
allocations to alternatives are very much still in place with pension fund
clients and SWFs (who form a majority of industry AUM) allocating to
alternatives on decade-long views. In this context we believe alternative
asset managers can continue to compound Fee Related Earnings ("FRE") per share
at high level for many years to come. Even if one punitively assumes that
carry is worth zero, excluding balance sheet investments, KKR and Apollo are
trading at 14x / 13x fee-related earnings. We believe this to be great value.

 

Symphony International:

Symphony International was the most meaningful contributor to returns during
the month. The shares rose +35% in local (dollar) terms, with Sterling
weakness resulting in a +41% GBP return for AGT. This was driven exclusively
by discount narrowing (indeed the NAV was marginally negative of the month) as
the discount moved from 56% to 40%. This speaks to the powerful returns that
can be earned when discounts reach extreme levels. Our view remains that a
change to the company's strategy and to its Board will be required for
shareholders to have a chance of capturing the latent value on offer, and we
continue to engage with shareholders on this and other matters.

 

Godrej Industries:

During the month Godrej Industries announced the launch of Godrej Capital as a
new subsidiary to act as the financial services arm of the group. Having
started with home loans under the banner of Godrej Housing Finance last year,
the group will expand upon this to offer Loans Against Property ("LAP").
Godrej have injected 1500 crore (3% of NAV) and believe the business will
require a total of 5000 crore of capital in order to reach their target of a
30,000 crore ($4bn) balance sheet by 2026.

 

The Godrej family have a successful history of building businesses - such as
Godrej Properties and Godrej Agrovet - and then listing them once they mature.
We expect a similar path here and view the Godrej Group as rare in our
universe in terms of having strong brand and trust equity than can be used to
spawn new businesses. Over time the presence of an attractive unlisted asset
in Godrej's NAV could well give other investors a "reason" to invest in the
holding company as opposed to their listed underlying holdings directly,
thereby acting as a force to narrow the discount. At 62% we believe the
current discount to be unjustifiably wide, with the prospects of strong
discount returns from such a level.

 

Contributors / Detractors (in GBP)

 

 Largest Contributors               1- month contribution  % of NAV

                                    bps
 Symphony International Holdings    96                     3.4
 Third Point Investors              32                     3.5
 Godrej Industries                  30                     3.4
 Oakley Capital Investments         16                     6.5
 Third Point Investors Master Fund  16                     3.1

 

 Largest Detractors        1- month contribution  % of NAV

                           bps
 Pershing Square Holdings  -75                    8.6
 Sony Group                -74                    4.9
 Apollo Global Mgmt.       -52                    2.9
 IAC/InterActiveCorp       -49                    3.3
 KKR                       -47                    5.2

 

 

Link Company Matters Limited

Corporate Secretary

 

18 May 2022

 

LEI: 213800QUODCLWWRVI968

 

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