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Alternative Investment Trust AIQ AU
April 26, 2011 - 2:37pm EST by
ele2996
2011 2012
Price: 0.74 EPS n/a n/a
Shares Out. (in M): 131 P/E n/a n/a
Market Cap (in $M): 97 P/FCF n/a n/a
Net Debt (in $M): 0 EBIT 0 0
TEV ($): 97 TEV/EBIT n/a n/a

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Description

This security does not offer a great deal of liquidity, so those of you who need size might not want to waste your time here.
 
The Alternative Investment Trust started its life as the Everest Babcock & Brown Alternative Investment Trust in April of 2005. The Trust was formed in order to offer small investors the opportunity to invest in a diversified portfolio of absolute return hedge funds. The Trust raised additional capital for investment in 2006 and again in 2007. By year end 2007, the Trust had assets of $1.3 billion. Of course, since one can never get enough of a good thing, the Trust employed leverage. At the end of 2007, the Trust had loans of $566 million and equity was $743 million. Although the results of the Trust's underlying investments were not bad, the Trust's shares traded at increasingly large discounts to NAV. At May 30, 2008, NAV was $3.95 and the shares were trading at $2.20. To counter this discount to NAV, the Trust bought back shares in the open market. Unfortunately, the investment manager, Babcock & Brown, a Macquarie-like Australian investment bank, was itself coming under a great deal of pressure, and it ultimately went out of business.  As the financial markets imploded in the latter half of 2008, the Trust's share price continued to drop and its underlying investments started to produce losses. The Trust proposed that it delist in September, effectively going private. It offered liquidity to 10% of the shares outstanding. By the end of October, the Trust's underlying investments had lost 30% in 2008. NAV was $2.80 and its stock price was $1.33. Vultures started to acquire the Trust's shares, and they filed lawsuits to derail the delisting plan. Laxey Partners, a UK-based closed-end fund raider, proposed that the Trust liquidate rather than delist and go private. Under the Trust's delisting proposal about 27% of the Trust's shares elected to transfer their holdings into an unlisted investment fund. The other 73% of the shares voted to remove Everest Babock & Brown as investment manager and to appoint Laxey as the Trust's manager. Since Laxey's appointment in January 2009, the Trust has paid off its borrowings, has begun the liquidation of its investments, and has made return-of-capital distributions of $0.85. The Trust also changed its name to the Alternative Investment Trust and its stock symbol to AIQ AU. It continues to trade on the Australian Stock Exchange. On March 13, 2009, AIQ shares traded at $0.44 against an NAV of $2.21 at the end of March. On March 31, 2011, the shares traded at $0.74 against an NAV of $1.0105 for a discount to NAV of 26.7%. In addition to the capture of the discount over time, the Trust's assets are earning and those monies will go to its shareholders.
 
The Trust is invested in the following areas:
  1. Asset Based Lending - 25.1%
  2. Credit Related - 13.3%
  3. Distressed - 4.7%
  4. Equity long/Short - 13.3%
  5. Income Producing - 11.6%
  6. Multi-Strategy - 29.2%
  7. Other - 0.8%
  8. Cash - 2%
     Total - 100.0%
 
84.6% of the Trust's assets are in US Dollars with the remaining 15.4% in Australian Dollars.
 
The top 10 investments are in funds managed by investment partnerships with recognizable names. The top 10 investments by size are:
  1. Drawbridge (Fortress) - 25.1%
  2. ESL Investments (Edward Lampert) - 13.3%
  3. EBIIF (Everest Brown Investment Income Fund) - 11.7% (Management taken over by One Investment Group)
  4. Marathon Special Opportunity Fund - 7.1%
  5. TPG-Axon - 5.4%
  6. Eton Park Overseas - 5.4%
  7. GSO Special Situations Overseas - 3.8%
  8. Och-Ziff Global Special Situations - 3.7%
  9. Everest Absolute Return Fund  - 3.7% (Management taken over by One Investment Group)
  10. Cerberus International Ltd - 2.5%
    Total -                                         81.7%
    Cash -                                           2.0%
    Total -                                         83.7%
 
Laxey estimates that 8% of the Trust's assets will be liquidated by the end of June 2011, a further 5% by December 2011, and a further 9% by the end of 2012. This 22% return of capital should viewed as the minimum target for the return of the Trust's capital. At the end of 2010, 30% of the Trust's investments were in "side-pockets" where the return of capital date is presently unknown. However, given that the capital markets have been very good, I would expect some progress in "side-pocket" liquidations. 68% of the Trust's investments are in funds with regular but extended liquidation provisions. There maybe greater progress here than the contractual minimum liquidity. In addition, Laxey has sold investment positions in the secondary market which also offers liquidity. Overall, I expect better progress than the 22% indicated above.
 
Laxey gets a fee of 3/4 of 1% per annum on the Trust's gross assets and a 1% fee on all distributions. As Laxey is in the business of raiding closed-end funds trading at a discount, it needs a good reputation in the closed-end fund community. Therefore, it is not in Laxey's interest to enrich itself on this carcass.
 
The top three holders of the Trust are:
  1. Weiss Asset Management - 34.6%
  2. Laxey Partners - 23.5%
  3. Tribeca Investmnet Partners - 11.2%
Overall, an investor in Alternative Investment Trust shares gets a package of mature hedge fund investments, that should earn a positive rate of return going forward, at a 26.7% discount to net asset value. I believe that the odds are very much in an investor's favor here.
 
Of course, the markets could implode again, but that's the risk in every long equity position.

Catalyst

The liquidation of the portfolio over time.
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    Description

    This security does not offer a great deal of liquidity, so those of you who need size might not want to waste your time here.
     
    The Alternative Investment Trust started its life as the Everest Babcock & Brown Alternative Investment Trust in April of 2005. The Trust was formed in order to offer small investors the opportunity to invest in a diversified portfolio of absolute return hedge funds. The Trust raised additional capital for investment in 2006 and again in 2007. By year end 2007, the Trust had assets of $1.3 billion. Of course, since one can never get enough of a good thing, the Trust employed leverage. At the end of 2007, the Trust had loans of $566 million and equity was $743 million. Although the results of the Trust's underlying investments were not bad, the Trust's shares traded at increasingly large discounts to NAV. At May 30, 2008, NAV was $3.95 and the shares were trading at $2.20. To counter this discount to NAV, the Trust bought back shares in the open market. Unfortunately, the investment manager, Babcock & Brown, a Macquarie-like Australian investment bank, was itself coming under a great deal of pressure, and it ultimately went out of business.  As the financial markets imploded in the latter half of 2008, the Trust's share price continued to drop and its underlying investments started to produce losses. The Trust proposed that it delist in September, effectively going private. It offered liquidity to 10% of the shares outstanding. By the end of October, the Trust's underlying investments had lost 30% in 2008. NAV was $2.80 and its stock price was $1.33. Vultures started to acquire the Trust's shares, and they filed lawsuits to derail the delisting plan. Laxey Partners, a UK-based closed-end fund raider, proposed that the Trust liquidate rather than delist and go private. Under the Trust's delisting proposal about 27% of the Trust's shares elected to transfer their holdings into an unlisted investment fund. The other 73% of the shares voted to remove Everest Babock & Brown as investment manager and to appoint Laxey as the Trust's manager. Since Laxey's appointment in January 2009, the Trust has paid off its borrowings, has begun the liquidation of its investments, and has made return-of-capital distributions of $0.85. The Trust also changed its name to the Alternative Investment Trust and its stock symbol to AIQ AU. It continues to trade on the Australian Stock Exchange. On March 13, 2009, AIQ shares traded at $0.44 against an NAV of $2.21 at the end of March. On March 31, 2011, the shares traded at $0.74 against an NAV of $1.0105 for a discount to NAV of 26.7%. In addition to the capture of the discount over time, the Trust's assets are earning and those monies will go to its shareholders.
     
    The Trust is invested in the following areas:
    1. Asset Based Lending - 25.1%
    2. Credit Related - 13.3%
    3. Distressed - 4.7%
    4. Equity long/Short - 13.3%
    5. Income Producing - 11.6%
    6. Multi-Strategy - 29.2%
    7. Other - 0.8%
    8. Cash - 2%
         Total - 100.0%
     
    84.6% of the Trust's assets are in US Dollars with the remaining 15.4% in Australian Dollars.
     
    The top 10 investments are in funds managed by investment partnerships with recognizable names. The top 10 investments by size are:
    1. Drawbridge (Fortress) - 25.1%
    2. ESL Investments (Edward Lampert) - 13.3%
    3. EBIIF (Everest Brown Investment Income Fund) - 11.7% (Management taken over by One Investment Group)
    4. Marathon Special Opportunity Fund - 7.1%
    5. TPG-Axon - 5.4%
    6. Eton Park Overseas - 5.4%
    7. GSO Special Situations Overseas - 3.8%
    8. Och-Ziff Global Special Situations - 3.7%
    9. Everest Absolute Return Fund  - 3.7% (Management taken over by One Investment Group)
    10. Cerberus International Ltd - 2.5%
        Total -                                         81.7%
        Cash -                                           2.0%
        Total -                                         83.7%
     
    Laxey estimates that 8% of the Trust's assets will be liquidated by the end of June 2011, a further 5% by December 2011, and a further 9% by the end of 2012. This 22% return of capital should viewed as the minimum target for the return of the Trust's capital. At the end of 2010, 30% of the Trust's investments were in "side-pockets" where the return of capital date is presently unknown. However, given that the capital markets have been very good, I would expect some progress in "side-pocket" liquidations. 68% of the Trust's investments are in funds with regular but extended liquidation provisions. There maybe greater progress here than the contractual minimum liquidity. In addition, Laxey has sold investment positions in the secondary market which also offers liquidity. Overall, I expect better progress than the 22% indicated above.
     
    Laxey gets a fee of 3/4 of 1% per annum on the Trust's gross assets and a 1% fee on all distributions. As Laxey is in the business of raiding closed-end funds trading at a discount, it needs a good reputation in the closed-end fund community. Therefore, it is not in Laxey's interest to enrich itself on this carcass.
     
    The top three holders of the Trust are:
    1. Weiss Asset Management - 34.6%
    2. Laxey Partners - 23.5%
    3. Tribeca Investmnet Partners - 11.2%
    Overall, an investor in Alternative Investment Trust shares gets a package of mature hedge fund investments, that should earn a positive rate of return going forward, at a 26.7% discount to net asset value. I believe that the odds are very much in an investor's favor here.
     
    Of course, the markets could implode again, but that's the risk in every long equity position.

    Catalyst

    The liquidation of the portfolio over time.

    Messages

    SubjectRE: Side Pockets
    Entry04/26/2011 06:15 PM
    Memberele2996
    I believe that the side-pockets are the Fortress Drawbridge fund and the Cerberus fund, although I am not positive. Both of these funds have plenty of people looking at the assets and the pricing.
     
    One of the nicer facts about this collection of assets is the fact that they are invested in well-know funds which attract institutional money and, therefore, provide a good deal of transparency.
     
    Accordingly, I think that the funds are correctly priced to today's market.
    SubjectUpdate
    Entry10/04/2011 10:00 AM
    Memberele2996
     
    SubjectCorrect Update
    Entry10/04/2011 11:47 AM
    Memberele2996
    NAV has fallen slightly from $1.0105 at the end of March to $0.9797 at the end of August. The share price has also fallen slightly declining to $0.71 from $0.74 when this was written up. Accordingly, the discount to NAV has expanded very slightly from 26.7% to 27.5%.
    The good news is that proceeds from liquidations have come in faster than anticipated. The company has declared a $0.15 liquidating dividend payable to holders of record on 10/13. 
    If all of the numbers remain constant (unlikely), NAV will be reduced to $0.8297 and the shares price, now $0.71, should decline to $0.56. If that holds true, the share price will be at a 32.5% discount to NAV.
    Hopefully, the underlying assets of the fund weather the market's decline.
    SubjectUpdate
    Entry12/28/2011 08:17 AM
    Memberele2996
    Another $0.15 dividend has been declared to holders of record 1/11/2012. This wll reduce NAV from $0.846 to $0.696. The shares should decline in price from $0.65 to $0.50. If that holds true, the discount to NAV will be 28.2%.
    Since this was posted on 4/26/2011, shareholders will have received back (including this distribution) $0.30 of cash ( 40.5% of their investment), reducing their cost from $0.74 to $0.44 while NAV will have declined from $1.0105 to $0.696. So far, so good.
    SubjectUpdate
    Entry05/16/2012 06:51 PM
    Memberele2996
    NAV was $0.6909 as of April 30, 2012.
    Another $0.15 return-of-capital dividend has been declared to holders of record on June 1,2012. With this payment, the trust will have returned $0.45 or 60% of its write-up price, There remains $0.54 of NAV to be realized.
    SubjectRE: RE: Update
    Entry05/17/2012 09:04 AM
    Memberele2996
    I do not.
    The manager originally projected that 22% of NAV would be distributed by the end of 2012. So far, about 45% of March 31, 2011 NAV has been distributed, including this most recent payout yet to be received. So far, so good, although not great.
    Based on the company's March 31, 2012 update, little progress has been made on the redemption of the "side-pocket" assets. As of that date, the portfolio held $70 million of assets, net of cash. Of that, $33 million, or 47% was in "side-pockets". On 12/31/2010, $40 million was in this illiqiud catagory, so not much progress has been made. I have no idea when they will payout, and, therefore cannot estimate an IRR.
    I believe that the "side-pockets" are primarily in ESL (Lambert) 20% and Drawbridge (Fortress) 11%. These are quite mature, if not ancient, and everyone must want out badly. Redemption maybe tomorrow or next year.
    Sorry that I cannot be more specific.
    SubjectUpdate
    Entry01/17/2013 11:32 AM
    Memberele2996
    AIQ AU has declared a $0.13 distribution. With this the Company will have distributed $0.58 of the $0.74 starting price, or 78%. After the distribution there will be about $0.41 of assets remaining.
     
     
    SubjectAIQ AU Update
    Entry04/29/2013 09:29 AM
    Memberele2996
    AIQ AU has declared a $0.07 liquidating dividend to stockholders of record on May 17. This will bring the total payout to $0.65 or 88% of the starting price and reduces the residual cost to $0.09. After the distribution, there will be about $0.33 of assets per share still to be distributed.
    SubjectAIQ AU Update
    Entry07/02/2013 10:50 AM
    Memberele2996
    AIQ AU has declared a $0.04 dividend to holders of record on July 8th. Since the original posting, the company will have distributed $0.69 or 93% of the write-up price. Due to modest increases in the underlying holdings of the company, there is still about $0.33 to be distributed. 
    In addition, the manager has agreed to a small cut in their fee to .75% from 1%.
    All-in-all, good news.
    SubjectAIQ AU Update
    Entry11/13/2013 04:08 PM
    Memberele2996
    AIQ AU has declared a $0.09 dividend to hoolders of record 11/25/13. With this distribution, the company will have paid out $0.78 or 105.4% of its price on 4/26/2011. There remains $0.2509 of assets per share to be distributed. A large distribution should be coming early in 2014 as ESL pays out.
    SubjectAIQ AU Update
    Entry01/27/2014 03:50 PM
    Memberele2996
    AIQ AU has declared a $0.05 dividend to holders of record 2/5/14. With this distribution, the company will have paid out $0.83 or 1.12% of its price on 4/26/2011. There remains $0.21 of assets per share to be distributed. I expect another $0.05 dividend this year as ESL pays out more funds.
     
    SubjectAIQ AU Update
    Entry04/30/2014 11:33 AM
    Memberele2996
    AIQ AU has declared a $0.04 dividend to holders of record 5/13. With this distribution, the company will have paid out $0.87 or 117% of its price on 4/26/2011. There remains $0.17 of assets to be distributed.
    SubjectRE: AIQ AU Update
    Entry04/30/2014 12:16 PM
    Memberjgalt
    Thanks for the updates
    SubjectRE: RE: AIQ AU Update
    Entry04/30/2014 03:03 PM
    Memberele2996
    You're welcome - happy that someone reads them. Thanks
    SubjectAIQ AU Update
    Entry04/09/2015 07:21 PM
    Memberele2996

    The company paid a $0.04 distribution. With this payment the company will have returned $0.91 or 1.23% of the price on 4/26/2011. There is about $0.12 left.

    SubjectExit Comment
    Entry04/09/2015 07:26 PM
    Memberele2996

    After the latest distribution, received today, there is only about $10 million USD of assets left to be distributed. In addition, the discount seems to have evaporated based on the Bloomberg quote.

    If you purchased the shares and reinvested the distributions in additional shares, you would have earned a 25.1% rate of return as measured in AUD. Sadly, the AUD declined versus the USD, and the return in USD was only 15.1%. Not bad though.

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