Aquila Renewables (AERI) pausing its sales process with a preferred bidder last month was a “major disappointment” for MIGO Opportunities (MIGO), weighing on returns after two strong months for the bargain-hunting closed-end fund investor, although it did benefit from a positive update from Chrysalis Investments (CHRY).

Chrysalis’ announcement of a 14% increase in net asset value (NAV) in the second quarter drove shares in the pre-IPO growth capital fund 7% higher in July and contributed 66 basis points (0.66%) of MIGO’s 1.5% growth in NAV in July, according to its latest factsheet. Shares in Chrysalis have soared 66% in the past year as it recovers from the 2022 growth stock crash.

Its one-month gain more than offset the 45-basis point hit from Aquila to MIGO’s monthly return, which the company said was “muted” after advances of 3.8% and 6.8% in asset value in June and May.

Aquila European, currently a 3.5% position for MIGO, has effectively been up for sale since December 2023 and the announcement dashed hopes of an early resolution that were raised in May when the company said the preferred bidder was considering buying a majority of its portfolio.

MIGO fund managers Tom Treanor and Charlotte Cuthbertson said the preferred bidder cut its price and removed an asset from the portfolio which the Aquila board believed would be difficult to sell by itself.

The managers said the sales process had been “excrutiatingly slow” with Aquila only selling two stakes in Sagres, a Portuguese hydro asset, and its 25% holding in Tesla, a Norwegian wind farm last year. Aquila’s chair admitted the sales environment was “challenging” as many other listed renewables funds sought to sell assets and shore up shareholder returns.

In a further blow this month, the investment company said its portfolio fell 12.1% to €279.3m in the second quarter due to falling power price forecasts and an increase in the discount valuation rate.

“With the shares sat at €0.54 and the written down NAV at €0.73 there is a considerable uplift should the portfolio be sold at this reduced level,” they said hopefully.

Chrysalis cheer

There are firmer grounds for optimism at Chrysalis which last month reinforced its top position in MIGO with a 42% uplift in the carrying value of Starling bank that was the main factor in its own valuation increasing to 6.5% of the trust’s assets. For the first time, Starling’s valuation includes Engine, its fast-growing banking software platform which the MIGO managers believe could be a valuation driver for the digital bank in future.

A write-up in the valuation of Klarna, the buy-now-pay-later credit company that accounts for 15% of Chrysalis, came with confirmation that the company was reviving plans to float, possibly as early as September.

“Even with some kind of lockup, Klarna’s listing would provide a considerable amount of cash returning to Chrysalis, which, with the discount still sitting at over 30% at time of writing, will mean subsequent additional buybacks or a tender offer will be highly accretive,” they said, although they cautioned that with some writedowns of smaller positions the portfolio was becoming increasingly concentrated.

The past three months have proved more positive for MIGO which has had a quiet 12 months with 4.2% NAV growth supporting a 4.1% shareholder return that is behind the 6.9% of its “Sonia” cash index. Over five years, however, shareholders have seen a 64.6% total return well ahead of the 26.9% benchmark return but below the 75.7% UK stock market return.