Inside a Hot IPO

August 19th, 2016

Two weeks ago the initial public offer (IPO) of Viva Energy (a portfolio of 425 Shell service stations) listed on the ASX. This was a very successful IPO, well managed by its investment bankers who structured the deal astutely to create demand from institutional investors and the stock gained +16% on its first day of trading. Indeed the success of this IPO has prompted Woolworths to look at spinning out their portfolio of service stations into a property trust with an expected valuation between $1.3 and $1.5 billion.

We are always very sceptical about new IPOs, however occasionally a great IPO comes along, either for a long term investment or one with a high probability of making a short term gain on its opening day. In this week’s piece we are going to look at the machinations of institutional investors during the roadshow and listing of a hot IPO and the game of Liar’s Poker that goes on between fund managers and the investment banks running the IPO process.

Read more here.

AFARF notice of meeting

August 18th, 2016

Aurora Funds Management Limited (ACN 092 626 885) (Aurora) is the responsible entity of the Aurora Fortitude Absolute Return Fund (AFARF or the Fund).

On 28 July 2016, Aurora received a notice from Providence Wealth Advisory Group Pty Ltd (Providence) acting for a group of unitholders in the Fund, requesting that Aurora call a meeting of unitholders for the purpose of considering resolutions for the winding up of AFARF and the
replacement of Aurora as the responsible entity of AFARF (Requested Resolutions).

As a representative of unitholders holding more than 5% of the issued units in the Fund, Providence is entitled, under the Corporations Act 2001 (Cth), to call such a meeting. Therefore, unitholders should be aware that the Requested Resolutions are not being put to unitholders voluntarily by Aurora and have not been proposed or endorsed by Aurora.

Attached is the Notice of Meeting and Proxy Form for a meeting to consider the Requested Resolutions to take place on Monday, 26 September 2016 commencing at 11:00am at Registry Direct, Level 6, 2 Russell Street, Melbourne Vic 3000. Attachment A to the notice of meeting is
the statement provided by Providence which, in accordance with the Corporations Act, is being distributed to you at the same time as the notice of the meeting. Aurora did not prepare and is not responsible for the content of that statement which appears to contain certain misconceptions as to fees charged by the responsible entity.

We note that Aurora takes its legal and other governing obligations seriously and exercises a high level of care and prudence in relation to questions of interpretation of the Fund’s constitution and the product disclosure statement, including as it relates to fees charged by the
responsible entity.

The Board of Aurora intends to issue a more detailed Explanatory Memorandum to unitholders which will be relevant to your decision on how to vote on the Requested Resolutions. Aurora recommends that unitholders take no action in respect of the Meeting prior to receiving the Explanatory Memorandum, which will be posted to the registered address of each AFARF unitholder at least three weeks prior to the Meeting.

If you have any queries in the interim do not hesitate to contact Betty Poon by telephone +613-8687-2263.

On behalf of Aurora, thank you for your ongoing support of the Fund.

Read more here.

Low Interest Rates and Stock Price Bubbles

July 29th, 2016

On Wednesday this week the Australian Bureau of Statistics (ABS) reported that inflation for the June quarter was 0.4%, down from 1% in 2015. This is watched very closely by the market, as it is a key measure used by the Reserve Bank of Australia (RBA) in making their decision on the official cash rate and increases the probability that the official rate will be cut to 1.5% in August. The benchmark Australian 10 year government bond rate, which is used as the risk free interest rate to invest in Australia, fell to 1.88% in anticipation of this further rate cut.

Low interest rates not only impact retirees looking to live of the income see Searching for Yield, but also contribute to asset price inflation. Whilst this might not be the most exciting of topics, it is important to investors, as assets from shares to real estate are currently being priced with the anticipation that historic low interest rates will continue into perpetuity! In this week’s piece we are going to look at how the steady twenty year fall in the risk-free interest rate has contributed to the asset price bubble we find ourselves in.

Read more here.

AFARF liquidity announcement

July 25th, 2016

Liquidity Solution for Aurora Fortitude Absolute Return Fund

Aurora Funds Management Limited (“Aurora”) is pleased to announce some important changes to the Aurora Fortitude Absolute Return Fund (“the Fund”).

As you may be aware, on 25 February 2016, applications, redemptions and distribution reinvestments were temporarily suspended as a result of the Fund holding Convertible Notes (AZZG) issued by Antares Energy Limited (“Antares”). At the time, Antares had been suspended from trading on the ASX and as such the AZZG Notes were considered illiquid.  Subsequently, on 28 April 2016, the directors of Antares placed the business into Administration with FTI Consulting ultimately being appointed as the Administrators of Antares. FTI Consulting remain in place as the Administrators today.

Since this time, Aurora has been working to deliver an equitable liquidity solution for investors.

Aurora can now confirm that an off market liquidity solution will be made available for those investors wishing to redeem their investment from the Fund.  Redemption requests will be satisfied by a combination of cash (approximately 90% of the investment value, based on the Fund’s current portfolio), with the balance to be satisfied from the currently illiquid portion of the Fund’s investments as and when they become liquid. To assist with transparency, the Fund will treat the illiquid component of an investor’s underlying investment in the Fund (AZZG plus a residual amount of cash to fund the associated costs) as a separate pool.

In our view, this liquidity solution results in a fair outcome for all unitholders as it provides investors with an opportunity to redeem the liquid portion of their investment whilst retaining an entitlement to the illiquid portion (which will be realised in due course). The ongoing integrity of the Fund is also preserved for remaining unitholders, and those seeking to exit the Fund will be able to receive the majority of their investment in cash.

How the liquidity solution will work

The Fund will notionally create two (2) pools, being the Aurora Fortitude Absolute Return Fund General Pool (“General Pool”) and the Aurora Fortitude Absolute Return Fund Note Pool (“Note Pool”). The illiquid investment, AZZG, will be transferred to the Note Pool along with some cash to fund the Administration, with the remaining liquid investments being held in the General Pool. All existing investors will have proportional exposure to both Pools.

Investors wishing to withdraw their investment will have redemptions satisfied by a combination of cash from the General Pool (circa 90%, based on the Fund’s current portfolio) and an entitlement to the Note Pool (circa 10%).

The Note Pool will continue to be managed by the Fund and realised over time, which is expected to be in the vicinity of 12 months (although Aurora cannot guarantee this timeframe – a significant timing issue for the Fund is the timing of reports from the Administrator of Antares to creditors, including the Fund). The Fund’s priority is to maximise returns for all investors from the AZZG position.

It is currently contemplated that Aurora will, in due course, establish a separate Special Purpose Vehicle (“SPV”), managed by Aurora, to enable the assets in the Note Pool to be transferred across to the SPV. The SPV would also be able to hold any AZZG Notes currently held by other Aurora Funds. Simultaneously, ownership of the SPV would be transferred in-specie to all unitholders, in proportion to their original investment. This would then enable each of the Aurora funds (impacted by the AZZG Notes) to be unfrozen.

This mechanism will also enable the distribution reinvestment plan to be reintroduced.

Currently, clause 7.7 of the Fund Constitution requires the Responsible Entity to cancel those Units that have been redeemed. Given the creation of two (2) Pools, the Responsible Entity has determined that the rights of unitholders would not be adversely impacted if the Constitution were to be amended to enable units in the General Pool to be cancelled, whilst units in the Note Pool remain on foot.

The current Product Disclosure Statement (“PDS”) contemplates 90% of the Fund’s assets being able to be liquidated within 10 business days. To facilitate the normal functioning of the Fund, whilst the Note Pool is in place, the Fund will revert to the liquidity requirements contained in its Constitution, which is consistent with the Corporations Act.

The PDS will also be amended to make it clear to all new unitholders that any new investment will only have an entitlement to the General Pool.

The Responsible Entity is of the opinion that the creation of two (2) Pools, and establishment of the SPV in due course, will enable existing unitholders to ultimately maximise their investment returns.  To facilitate this change to the Fund structure, the Responsible Entity has decided to exercise its power under the Fund’s Constitution to introduce a withdrawal fee equal to 1.85%, excluding any GST, of the redemption amount.

The team at Aurora welcome the resolution of the liquidity situation. With this impediment now removed, we look forward to continuing our strong track record of generating risk-adjusted returns for our investors.


Redemption requests can now be submitted immediately, with redemptions to be processed on the last business day of each calendar month, pursuant to the Fund’s Constitution. Due to financial year-end, the next redemption day will be Wednesday 31 August 2016, with proceeds from a redemption request likely to be received within 14 business days thereafter.

What to do if you wish to remain invested in the Fund

If you wish to remain invested in the Fund, you don’t need to do anything. Your investment will continue to:

  • Pay quarterly distributions; and
  • Be actively managed according to the Fund’s investment objective.

What to do if you wish redeem

Should you wish to withdraw part or all of your investment, you will need to:

  • Download a redemption form from our website at Redemption Form;
  • Read and consider the Aurora Absolute Return Fund PDS available from; and
  • Obtain financial and taxation advice on whether redemption is appropriate for you and your financial position. In relation to taxation, the right to obtain a further amount from the Note Pool may have a value depending on the value of the AZZG notes which you may need to add to your cash receipt in determining the tax consequences to you of redemption of your Units.

The unit registry, One Registry Services will send you a confirmation of your redemption and your entitlement to the Note Pool (including the per Unit value of the net asset value of the Note Pool shown in the latest audited accounts of the Fund).  You should keep this documentation for your records. One Registry Services can be contacted on (02) 8188 1510.

A print version is available here.

A Strategy for Uncertain Times

July 25th, 2016

The world is in a period of low growth and political uncertainty (Brexit, Hung Parliaments, Donald Trump etc). Property as an investment class has performed well in this environment and is expected to continue to do so with lower interest rates and the largesse of central banks continuing to pour fuel on the fire. Quality, as an investment style, is also expected to outperform during periods of uncertainty see our note  Investment Philosophies. During turbulent times, investor’s risk appetite reduces sharply and companies that were previously perceived to be “boring” become favoured by investors for their stable earnings, dividends and conservative balance sheets.

Currently the official cash rate in Australia is 1.75% and we are expecting a further cut in August 2016 to 1.5%. This will likely push the benchmark 1 year term deposit rate below 2%, which will further ratchet up the pressure on retirees requiring income that don’t enjoy baked beans on toast with the frequency that small children do! In this piece we are going to look at the buy-write strategy of enhancing income in a portfolio and how this strategy performs during periods of low growth and uncertainty.

Read more here.

Mid-Season Report Card

July 8th, 2016

The last six months have been stressful for Australian equity investors and despite the ASX200 delivering a total return of 1.1% (capital appreciation plus dividends), it has been an emotional rollercoaster. December’s Santa Claus rally turned into a brutal hangover in the New Year, similar to that given by excessive consumption of four litre cask white wine from Southern Queensland. The market then staged a recovery in March and May, before falling in a heap in June due to the surprising outcome of UK vote to leave the European Union.

In this week’s piece we are going to look at what has happened over the first half of the year, some key themes and analyse the catalysts that contributed to the top and bottom performers.

Read more here.

Brexit ……. Smexit!!

June 30th, 2016

The last five days have been stressful for Australian fund managers with Britain both voting to withdraw from the European Union and England handing the Wallabies an ignominious series defeat. These two factors have wiped A$42 billion off the market capitalisation of the ASX. Whilst fear and uncertainty have dominated the animal spirits of the market, it is hard to make the case that Brexit is another GFC for Australian equities and indeed that a recession in the United Kingdom will have a dramatic impact on the profits of Australian listed companies. In this week’s piece we are going to look at the actual profits earned by ASX 200 companies in the United Kingdom and the quantum that is actually at risk.

Australian Profits coming from the UK

In 2015, the 200 companies that comprise the ASX 200 delivered a net operating profit after tax of A$104 billion and of this A$2.4 billion, or 2.4% was derived from operations or exports to the UK. To put this in context, the fall in value of the ASX 200 from Friday 24th to Wednesday 29th June was almost 18 times the entire profits earned in the UK by large Australian listed companies last year.

Read more here.

Brexit ‘isn’t the GFC

June 28th, 2016

Written by VANESSA DESLOIRES of The  Australian Financial Review.

Hugh Dive, portfolio manager at Aurora Funds Management, said the direct impact on Australia’s big four banks would be minimal, apart from some selling on negative sentiment in the sector.

Read more here.


Earnings Shenanigans …. are your profits being manipulated?

June 27th, 2016

In just over a month’s time investors will be bombarded with profit results announcements from listed companies for the financial year ending in June. In the financial press and from the research analysts in the investment banks there is rarely much critical analysis of the figures presented due to the vast number of companies required to report their results in a four week period. As discussed in the piece Confession Season, company management teams are always under pressure to deliver results in line or above market expectations or face the negative share price reactions. This gives management, in particular the chief financial officer (CFO), strong incentives to present the most positive picture possible of a company’s financial health.

In this week’s piece we are going to look at what a company can do to dress up their financial results and what tricks to look for when Australian corporates release their June profit results. Not necessarily the most exiting topic, but something fundamental to think about as the ASX200 oscillates wildly on Brexit Day!

Read more here.

Investors can make money from profit downgrades

June 21st, 2016

Written by RICHARD HEMMING of The Australian

“Hugh Dive manages a “long short” hedge fund for Aurora Funds, which can short sell up to 25 per cent of the value of the stocks it owns. Recently he has had success shorting Flight Centre, Ansell, Orica, Spotless and ALS.”

Read more here.



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