Regal Funds Share Purchase Plan

Regal Investment Fund (RF1.AX) is doing a share placement and a share purchase plan (SPP). Under the SPP you can buy up to AUD 30k of shares at the recent NAV of AUD 3.41. They have made an official 20% average rate of return since inception. My internal rate of return is higher than this. So, I think I should take up all of this, but don't have anything I want to sell in the SMSF's brokerage accounts. I could either make an additional AUD 30k non-concessional superannuation contribution to my account or withdraw something from one of the SMSF futures investments. It's probably the last chance to make non-concessional contributions to my account, as I could hit the balance transfer cap of AUD 1.9 million by 30 June 2025. Also, the futures investments have been weak recently, so I think they might see a return to the mean in terms of performance and selling now might not be a good move.

Sold All My Shares in Platinum Capital

The company announced the result of its strategic review: They will merge the listed investment company PMC.AX and their ETF PIXX.AX. The price jumped on the news to the $1.45-1.46 range. This leaves about a 5% potential gain to the current NAV of PMC.AX. But we have to wait probably till the end of the year for the plan to come fruition, and if PMC.AX continues to underperform as it has recently, the NAV can fall. So, I sold all my shares today.

It was one of my oldest investments. I first invested in 2001 but sold during the dot.com crash. I then reinvested in 2005 and have held varying amounts of shares since then. The internal rate of return has been 12.02%, which was enhanced by trading the shares. Total profit AUD 100,530.

Integrated Portfolio Solutions Acquired

Back in 2021, I co-invested alongside Aura AUD 100k in Integrated Portfolio Solutions, a private company. At the time, I thought there wasn't a lot of downside risk as an acquirer would be willing to pay to obtain the client accounts they were advising. The company didn't manage to execute on the expansion plans that they touted at the time. In the wealth management/advisory/platform business there are economies of scale needed to achieve profitability. Today it was announced that the company is being acquired for roughly the value at the point when we invested. Various closing costs are going to result in about an 8% loss. Part of the consideration for the acquisition is going to be in terms of equity of the acquirer, DASH Technology Group, but now my position will be a much more reasonable amount for an investment in a non-profitable private company. I feel lucky I didn't lose more!

Longwave Small Australian Companies

Recently, what used to be the First Sentier Developing Companies Fund became the Longwave Small Australian Companies Fund. In other words, First Sentier dropped managing the fund and transferred it to Longwave. I checked Longwave's track record and it wasn't that great. So, I decided to close our holdings of this fund. I withdrew part of Moominmama's holding to fund her concessional superannuation contribution for this financial year. Then I wanted to withdraw half of my holding and switch the rest to the FS Imputation Fund that does manage to beat its benchmark. 

As my holding of this fund is under my CommSec margin loan, I had to send the Colonial First State forms requesting the transaction to CommSec. Then CommSec sent me back their own withdrawal form, which was super unclear. Turns out that they have switched 50% of my Longwave holding to FS Imputation. But then instead of withdrawing the rest, they have withdrawn 50% of the rest! I can't be bothered to fill out another set of forms to submit right now as I don't need to withdraw the money...

Coinsnacks Issues Negative Report on Defi Technologies

Coinsnacks issues a negative article on Defi Technologies. The stock fell 25-30% in Tuesday trading as a result. The article is very selective. The company has issued statements suggesting that their financial position has improved radically since the end of Q1 in March. We will have to wait till the end of the current quarter to fully understand that. The current rise in stock price is as much about that as the promotional efforts that the company has made to raise its stock price. The company issued a statement claiming that the report may be connected to short sellers, which is pointedly not denied by Coinsnack's report which says they do not own shares in the company... If I understand the Defi's statement, they were approached to sell new shares to an investment bank, which they suspect would be used to cover a short position. But that was back on 10 June, when stock price was lower. So, I am confused. Anyway, in today's trade in Europe and Canada (US market was closed) the price stabilized for now.

Getting a Bit Crazy

Crazy to see an investment up by more in a day than any of my investments have been up in a month before in terms of dollars.... So far it is up about four times this month what any individual investment has done before. Of course, no guarantee that this will hold, so thought I'd post while it lasts. If you are puzzled, then you haven't read my recent posts. Let's see where we're at a the end of the month.

No, it's not bitcoin, which has been doing nothing. Still I saw this really nice chart of bitcoin's price path to date:

The x-axis is log days since the inception of Bitcoin, while the y-axis is the log price. With this transformation, bitcoin has followed a linear path. Yes, the growth rate has slowed over time, but now we see that it hasn't been an arbitrary rate of slowing. This is called the Bitcoin Power Law Theory. Of course, this is based on econophysics and might not continue to hold in the future.

P.S.

After being up 25% in European trade we closed up "only" 6% in North American trade.

L1 Long-Short Fund

The L1 Long-Short Fund (LSF.AX) is a closed end hedge fund listed on the ASX. It has had a very strong performance, beating the ASX 200 by threefold since its inception in 2014. But is it worth investing in now? The fund trades at a premium of about 9% to net asset value, as we might expect from a fund that has historically outperformed the market. So, that is a negative but not too large a premium. I plotted the fund's total return index (NAV not market price) against the ASX 200. The pattern looked familiar. It was a lot like that of Regal Funds' RF1.AX listed fund:

I set all three total return indices to 1000 in May 2019 when Regal Investments debuted on the ASX. What are the performance statistics of the two funds relative to the ASX? Since mid-2019, LSF had a beta of 1.066 and RF1, 0.80. The monthly alpha of the two funds have been 1.05% and 1.07%. RF1's alpha is a little more precisely estimated. The betas of the two funds using market price instead of NAV are much higher. RF1 has been around 1.3.

At this stage, I am not that inclined to invest in LSF given I am invested in RF1, but I might add it in the future.

Regal Partners Thesis

Regal Partners (RPL.AX) – the listed management company of Regal Funds – has increased rapidly in price recently:

I have doubled the size of my holding from 10k to 20k shares. I think both the Merricks acquisition and the private placement by the Pershing Square management company at a high valuation have been positives that have helped push the price higher. I am now back in profit on this investment. The IRR has hit 7.7%, which is pretty decent all things considered. The chart looks bullish for now, especially given the large volume associated with the green candles.

In other news, Defi Technologies (DEFI.NE) briefly hit double my initial entry point on Friday at CAD 1.88 before pulling back to close at 1.76. My average price is higher than CAD 0.94 due to subsequent additional purchases, including another 5,000 shares on Friday. I now have 70k shares.

Cambria Funds Launches a New Managed Futures ETF: How Will it Perform?

Cambria Funds have launched a new managed futures ETF – MFUT – managed by Chesapeake - Jerry Parker's (one of the turtle traders) firm. I compared the historic performance of the Chesapeake Diversified Plus managed futures program to the Winton Global Alpha Fund since 1996:

Clearly, Winton has outperformed Chesapeake and with substantially less volatility. The average return of Chesapeake has been 11.6% p.a., while Winton achieved 15.0%. Chesapeake's information ratio (Sharpe ratio with a zero percent hurdle) was only 0.44, while Winton's was 0.96.

It seems that Chesapeake's volatility decreased after about 2012. So let's focus on the period since then. Since the beginning of 2012 Chesapeake has outperformed Winton with an average annual return of 8.8% vs. 7.3%. However, Winton was still less volatile with an information ratio of 0.77 vs. Chesapeake's 0.52.

The full period, the correlation between the monthly returns of the two funds was only 0.44. Since 2012 it was 0.54. So, there it would seem there is a potential diversification case for investing in both funds. However the information ratio of an equal weight combination of the two funds is lower than that of Winton alone. This is true for both the full period and the post 2011 period. So, based on this, I won't be investing in MFUT.

Defi Technologies Announces a Stock Buyback

The news is pushing the price up strongly again today, though they won't start buying till next week.

Sold 500 Shares of 3i

I sold another 500 shares of UK private equity firm 3i. At the peak I had 5,000 shares and a net investment of around £41k. Now I have 3,500 shares and a net investment of £2k. So, I have taken out almost all my original investments. The holding is worth £103k, which, therefore, is almost all profit. The firm has a very oversize position in Action, a chain of European discount stores and so I am reducing my exposure to this single firm risk. Of course, I also have ideas about what to do with the money instead...

3i has been an excellent investment to date, so I plan on holding the remaining shares till something fundamental changes. The IRR has been 21.8% and has been a 23-bagger. I haven't multiplied my investment 23 times though, as for the longest period I had only 600 shares. My original investment in 2008 was a purchase of 200 shares and at the low point I had only 100 shares. I reached 5,000 shares only in 2022. Still it is the highest notional multiple on any of my investments ever. The second best of those I currently hold is Platinum Capital at about 10x.

Regal Partners Acquires Merricks Capital

Regal Partners announced that it is acquiring Merricks Capital, a private credit manager. The performance of their main fund is quite remarkable:

The rate of return is high and there was only one down month. It reminds me of Bernie Madoff's fund. I am not saying there is anything wrong here, but this kind of performance shouldn't be possible according to efficient market theory! The fund is way outside the envelope of the other assets on this risk-reward graph:

We are investors in Regal Partners (13k shares).

Pershing Square Sells Stake in Management Company

Pershing Square has sold a 10% stake in its management company for USD 1.05 billion. Last year, Pershing Square Holdings, its listed hedge fund that makes up most of its assets under management (we have 5k shares in it), made around USD 400 million in management and performance fees. Even if we assume that most compensation of employees is through dividends and share appreciation rather than salaries, that makes the P/E of the management company around 25, which is very high for an asset management company, especially one depending on variable performance fees. Regal Partners - an Australian listed hedge fund manager that I am invested in (13k shares) - has a forward P/E of about 15. Rather, Pershing Square's high P/E is predicated on raising a new USD 25 billion listed fund in the US. At 2%, this would produce management fees of USD 500 million per year! The fees of the existing Pershing Square fund listed in London will be reduced by part of the management fees on the new fund, so the $500 million isn't purely accretive. Previously Ackman said that they planned to raise USD 10 billion for the new fund.

Defi Technologies Announces More Trading Profits in May

Defi Technologies put out a press release announcing another USD 40 million in trading profits in May. If this is sustainable, the company would be worth billions. On the other hand, it makes me worry that it is another FTX - the crypto exchange that blew up. We will just have to wait and see if it can also generate losses. So, I am going to be very conservative on position sizing for now. I have 65,000 shares.

SMSF Portfolio Allocation

As there has been a lot of recent change in the SMSF portfolio allocation, I thought I would have a detailed look at it. The last time I updated this spreadsheet was in August 2022, when the portfolio was quite different.

We also are long two Australian Dollar futures contracts. The asset classes are where each investment is classified for my reporting based on asset classes. PBDC is equity of private credit lenders, Defi Technologies is a crypto asset manager, and bitcoin isn't mostly actually futures. So, their designated asset classes are a bit to a lot misleading. Regal is actually only about 50% hedge funds now, with real assets (water and royalties), private credit, and venture capital in the mix. In my reporting on asset classes I break it down along these lines.

So there is about 30% managed futures exposure, 21% crypto exposure, about 17% private equity, 16% property, 15% hedge fund with some real assets thrown in, and 1% cash.

There wouldn't be much point in having an SMSF if the portfolio looked like a typical industry fund 😊. 

We pay only 0.26% per year in admin fees to SuperGuardian.

Defi Technologies Seeking Formal US Listing

The company announced that it is actively seeking a listing on a US exchange and has hired Liquid Advisors to work on their case. It's currently an OTC or "pink sheets" stock in the US.

Zacks Report on Defi Technologies

Get the report here. Bottom line is: "Unsustainably Low Valuation". They have a valuation target of USD 3 vs. the current price of USD 0.80. This seems quite conservative. Still, I am being very cautious and invested 1.1% of the portfolio.

Apparently, chances of a US Ethereum ETF being approved are growing. But as a result, the price of Ethereum rocketed, which is good news for Defi.

P.S.

Zacks issued another report after the conference call today. They upped their price target to USD 7.

Keith Haring Painting in Exhibition

 I am an investor in the painting on the left. Hopefully no-one will throw soup at it or something!

New Investment: Defi Technologies

Anthony Pompliano recommended Defi Technologies in his daily newsletter, the Pomp Letter. He is heavily invested as his research firm was acquired for shares in DEFI. So, you wouldn't take this tip at face value but he might know what he is talking about. I checked out the company. Basically, they are forecasting around CAD 30 million in profit in 2024, when the market capitalization was about CAD 200 million. So, based on that it seems undervalued. If crypto prices rise, then assets under management and profit rise automatically. They also have a bunch of venture capital investments on their balance sheet. The management team looks good. Main threat is that competing products like a US launch of an ethereum ETF could take investors away from their exchange traded products that trade in Europe. But the SEC is not looking like they will approve this. So, I made a small investment (0.4%) yesterday. Made the mistake of buying shares on the Canadian CBOE exchange where the brokerage fee turned out to be 0.5%!

P.S.

The reason the brokerage turned out so expensive is that it is CAD 0.01 per share with a maximum fee of 0.5%. As I bought 20,000 shares trading at about CAD 0.94 each, I ended up paying 0.5%. For trading in the US it is USD 0.005 per share with a maximum of 1% and minimum of USD 1. So, I would have ended up paying more buying in the US! I'm not used to buying such low priced shares in North America.

SPY vs. Putnam BDC ETF

The Putnam Business Development Company ETF (PBDC) has outperformed the S&P 500 since inception with lower volatility. No guarantee this continues of course, especially as it's probably not statistically significant, but interesting:

The chart shows the share price of SPY divided by the share price of PBDC when both are adjusted for dividends. SPY, declined relative to PBDC over this period.