Alternative Investment Trust AIQ AU
April 26, 2011 - 2:37pm EST by
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 (in $M): 97 TEV/EBIT n/a n/a

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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.


The liquidation of the portfolio over time.
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