Super fund investors who are prepared to lock their money away for five years can gain exposure to a portfolio of unlisted companies, including many that are preparing for an initial public offering.
Perennial Value Management has launched the Perennial Private to Public Opportunities Fund, aiming to fill what is sees as a a gap in the market for the funding of emerging companies that do not fit the mandates of traditional investment managers.
Perennial has experience in the sector through the management of its Perennial Value Smeller Companies Trust and Perennial Value Microcap Opportunities trust.
Given the illiquid nature of the assets, Perennial has designed the fund with a closed end structure. Investments are for a term of five years. Perennial says it does not intend to permit redemption requests but it has the discretion to provide them.
The offer opened on 3 July and closes on 16 August. The minimum subscription is $100,000.
Perennial says the investment objective is to generate a return, net of fees and other costs, in excess of 6.5 per cent a year over the life of the fund.
The management fee is 1.5 per cent of the net asset value of the fund. Perennial is entitled to a performance fee equal to 20 per cent of the performance of the fund above the 6.5 per cent hurdle.
Given that private equity funds typically produce returns in the mid to high teens, the hurdle rate for a performance fee may be on the low side.
The target allocation is up to 40 per cent in pre-IPO companies, up to 30 per cent in unlisted companies looking for expansion capital and up to 30 percent in listed securities (IPOs and placements).
Most of the investments will be in Australian companies but the fund may also invest in foreign companies.
Investments of the Value Microcap Opportunities Trust illustrate the mixed forturnes of such an investment strategy. Atomos, a digital camera maker that was listed on the ASX last December and whose share price has climbed from 50 cents at listing to the current price of around $1.10.
Another of its investments is Revasum, a semiconductor manufacturing equipment maker. The company was listed on the ASX in December last year. The stock traded as high as $2 a share after listing but has since fallen back to around $1.25.
Perennial says successful investee companies must be able to demonstrate the viability of the business with existing revenue, offer a clear path to a “liquidity event” (such as an IPO), have strong management and offer a valuation discount.
If an investment of the fund is realised before the end of the planned investment period, Perennial may reinvest the proceeds in new investments.
At end of the five-year term Perennial intends to return all investment proceeds to investors. It may extend the term, subject to investor approval.
Exposure to any one investment will be limited to 10 per cent of the net asset value of the fund at the time of investment. The fund cannot borrow.