James Carthew: Trust wind-downs are full of pitfalls
Buying investment companies on hopes of a windfall when they wind down can mean a long wait with much potential for disappointment.
The investment companies sector continues to shrink. Of the 281 companies that I follow, no less than 34 are now in managed wind down and a few more are also headed for the exit.
For trusts with illiquid assets, the managed wind down process is designed to balance the need for liquidity with a desire to maximise the sales proceeds for shareholders. In most cases, the existing manager will do the job.
Sometimes, the process goes much faster than expected. You may remember that I bought some shares in abrdn Property Income (API) last year in anticipation of a managed wind down that I thought would take two or three years. In the event, much to my annoyance, the bulk of the portfolio was sold off after just a few months, in one go and at a knock down price (an 8% discount to NAV). At least I have booked a profit, and there is a little more to come when it sells a forestry asset bought to offset the property portfolio’s carbon emissions.
Sometimes, the process can be extremely protracted. JPEL Private Equity (JPEL) began its managed wind down in 2016. At the end of June 2016, it had net assets of $466.9m. An investor holding a dollar’s worth of stock (in share price terms) in 2016 has already had $1.60 back. Today, there are about $31m of assets left (which equates to an extra few cents).
Private equity trusts investing in funds as a limited partner (LP) can try to sell their interests in the secondary market to speed up a wind down. However… read more here