New Investment: Regal Partners

Regal Partners just merged with VGI to create a new larger alternative fund manager that will be known by the former name. The company still trades under the VGI.AX ticker but is expected to switch to RPL.AX. It seems undervalued to me at a PE of 6 and so I bought some shares. Especially, as that is based on VGI's inferior track record to date.

May 2022 Report

World markets stabilized with the MSCI World Index (USD gross) rising by 0.19% and the S&P 500 by 0.18%. On the other hand, the ASX 200 fell 2.43%. All these are total returns including dividends. The Australian Dollar rose from USD 0.7114 to USD 0.7177 increasing Australian Dollar returns and reducing USD returns. Our luck ended this month, and we lost 3.10% in Australian Dollar terms or 2.24% in US Dollar terms. The target portfolio lost 1.05% in Australian Dollar terms and the HFRI hedge fund index is expected to gain 0.21% in US Dollar terms. So, we under-performed all benchmarks.

Here is a report on the performance of investments by asset class (currency neutral returns in terms of gross assets): 

Hedge funds were the worst drag on performance followed by gold. Only futures and real assets had positive returns.

Things that worked well this month:

• TIAA Real Estate (AUD 4k), Australian Dollar Futures (4k), and URF  (also 4k) were the best performers.
  

What really didn't work:

• Tribeca Global Resources (- AUD 25k), gold (-19k), and Pershing Square Holdings (-18k) were the three worst performers...
  

 The investment performance statistics for the last five years are: 

The first two rows are our unadjusted performance numbers in US and Australian dollar terms. The following four lines compare performance against each of the three indices over the last 60 months. We show the desired asymmetric capture and positive alpha against the ASX200 and the MSCI but not against the hedge fund index. We are performing 1% per annum worse than the average hedge fund levered 1.67 times.

We moved a little bit nearer to our target allocation. Our actual allocation currently looks like this:

 

70% of our portfolio is in what are often considered to be alternative assets: real estate, art, hedge funds, private equity, gold, and futures. A lot of these are listed investments or investments with daily, monthly, or quarterly liquidity, so our portfolio is not as illiquid as you might think. On the other hand, around 47% of net worth (not including our house) are now in retirement accounts. Liquid investments are 57% of net worth and illiquid non-retirement investments are 13% of net worth. Because of leverage, the total is 117%. 

We receive employer contributions to superannuation every two weeks. In addition we made the following investment moves this month. It was a busy month.

• I bought 1,000 shares of 3i (III.L) after its share price fell in sympathy with US retailers like Target and Costco. I figured that the problems those faced probably weren't that similar to those faced by Action – 3i's European discount retailer. 3i also posted very good results recently.
• I sold all our shares in URF at 27 cents a share.
• I made additional investments in APSEC and the Australian Unity Diversified Property Fund.
• We made a small investment in a start-up via Unpopular Ventures syndicate.
• There were a lot of small trades involved with forex, tax loss harvesting, moving positions between accounts etc...

Invested in Another Startup

Unpopular Ventures offered a syndicated investment in the seed round of a start-up based in Europe. I can't give any details of the investment. Based on their projections, which I think look pretty unrealistic, it would be a fantastic investment but they have been growing very rapidly so far, have a lot of experience, and the valuation doesn't seem too crazy.

The investment is basically in a separate fund, where the general partners get 20% carry. They suggested investing USD 2,500 (minimum was USD 1,000) and I did that, following Meb's advice to invest a little in lots of different start-ups. I'm used to investing 1-2% or as little as 1/4% of the portfolio in an investment and this is more like 1/16%. On the one hand, I don't want to make too many different investments because of information overload. On the other hand, I can't do anything about this investment unless there is an exit or opportunity to invest more, so I don't really need to pay much attention to its performance.

Got Out of URF

After reading the most recent quarterly report I decided to get out of URF. I'm not optimistic that even if the shareholders vote against the sale deal we will eventually realize more for the investment and there is a big risk it is approved and we get less than the current market price. I exited yesterday and today at 27 cents per share for a net loss on the investment of AUD 2,300, which isn't too bad, I guess. Obivously, there are a lot of people thinking differently to me who want to buy in.

So Far So Good

The graph tracks the performance of our portfolio (Moom, orange) since the March 2020 low versus various benchmarks. All of these are in Australian Dollar terms. So, for example, we multiply the S&P 500 index by the Australian Dollar - USD exchange rate and track that.

 

 

Our portfolio is now a little ahead of the S&P 500 and quite a bit ahead of the MSCI but has had a smoother ride than both. The ASX 200 is ahead of us, but has also been more volatile.The target portfolio (Portfolio, black) also has lower volatility but we have beaten it by fund selection and trading.

No guarantee that this performance continues, but our goal is to achieve market like returns with lower volatility. Also, it isn't as pretty in US Dollar terms. Our strategy is designed to give low volatility in Australian Dollar terms.

April 2022 Report

World markets fell sharply with the MSCI World Index (USD gross) falling by 7.97%, the S&P 500 falling 8.72%, and the ASX 200 falling 0.85%. All these are total returns including dividends. The Australian Dollar fell from USD 0.7494 to USD 0.7114 increasing Australian Dollar returns and reducing USD returns. We lost only 0.16% in Australian Dollar terms but lost 5.23% in US Dollar terms. The target portfolio lost by 2.34% in Australian Dollar terms and the HFRI hedge fund index is lost 0.93% in US Dollar terms. So, we out-performed all benchmarks apart from the HFRI index. I felt like I was losing a lot of money, but in Australian Dollar terms it wasn't that bad.

Here is a report on the performance of investments by asset class (currency neutral returns in terms of gross assets): 

In a reversal of last month real assets, gold, and futures gained money, while other asset classes lost. Real assets were negatively affected by the URF debacle. Rest of the world stocks were negatively affected by the China Fund. Gold rose in Australian Dollar terms, though the USD price fell. US stocks performed worst and detracted from performance most, while gold performed best and contributed most to performance.

Things that worked well this month:

• Gold gained AUD 21k, Winton Global Alpha 10k, Tribeca Global Resources (TGF.AX) 11k, and Aspect Diversified Futures 8k.
  

What really didn't work:

• Pershing Square Holdings (-22k), Australian Dollar Futures (-17k), and Hearts and Minds (HM1.AX, -11k) all lost more than AUD 10k.

Our SMSF continues to perform quite well compared to our employer superannuation funds:

They're all indexed to 1000 in April 2021.

The investment performance statistics for the last five years are: 

The first two rows are our unadjusted performance numbers in US and Australian Dollar terms. The following four lines compare performance against each of the three indices over the last 60 months. We show the desired asymmetric capture and positive alpha against the ASX200 and the MSCI but not against the hedge fund index. We are basically performing a bit worse than the average hedge fund levered 1.67 times. Hedge funds have been doing well recently.

I adjusted the leverage on the URF.AX investment  to roughly 3:1 in our gross asset allocation as there still seems some possibility that the wind-up deal will be voted down by the shareholders.

We moved a little bit nearer to our target allocation. Our actual allocation currently looks like this:

70% of our portfolio is in what are often considered to be alternative assets: real estate, art, hedge funds, private equity, gold, and futures. We receive employer contributions to superannuation every two weeks. In addition we made the following investment moves this month. It was a busy month.

• I invested in the Unpopular Ventures rolling fund on the AngelList platform. The initial investment is USD 10k and then the same amount each quarter for eight quarters.
• Our listed investments trusts are now all in a CommSec account within the SMSF, which means I get accurate tax reporting and can subscribe to dividend reinvestment, which I did.
  
• I sold 10k shares in Pengana Private Equity (PE1.AX). These were shares in my name that I held to get accurate tax reporting, which I don't need any more. I sold at AUD 1.69 and the price is now AUD 1.49. So, that was a good move.
• I sold AUD 30k for USD and bought one more AUD futures contract, increasing AUD exposure by about 100k, which was a mistake.
  
• I withdrew AUD 25k from Domacom Investments after two crowdfunding campaigns just vaporized. 
• But I started accumulating units in another property at Domacom. It is a market garden property near the planned Badgery's Creek Airport. 60 Devonshire Road, Rossmore.
  
• I bought 12.5k WAM Leaders shares (WLE.AX).
• I invested AUD 10k in the Winton Global Alpha Fund, which has been doing well recently, for a change as I predicted. Seems futures work well in inflationary environments but not in low inflation environments. I based this opinion on this research.
• I invested AUD 10k in the Australian Unity Diversified Property Fund.
  
• I bought AUD 7k shares in Pendal as a merger arbitrage play.
• I invested in a new painting at Masterworks: "No Hopeless". I felt this might be over-valued but took the plunge anyway.
  

Two New Investments

 I invested in another painting at Masterworks, No Hopeless by Yoshitomo Nara:

This takes my investment back up to 12 paintings again, given that Doppelbild by Albert Oehlen was sold and should pay out soon. I was a bit nervous this was overvalued but after a bit of research took the plunge anyway and invested USD 10k.

I also started buying units in a property on Domacom: 60 Devonshire Road, Rossmore, which is a market garden near the planned Badgery's Creek Airport. After the initial investors paid up big fees for the establishment of the investment, it trades below par but at the last valuation saw an uptick in value. I am thinking now it makes more sense to buy in the secondary market on Domacom instead of joining "campaigns" that seem to go nowhere. 

So far, I only invested AUD 920, but have a bid open waiting for sellers.

Unpopular Ventures

We have invested in a rolling fund – Unpopular Ventures – on the AngelList platform. We invested in Moominmama's name (because she is in a lower tax bracket) following a failed attempt to invest through our SMSF. We will invest USD 10k each quarter for eight quarters, which is the minimum investment. The fund will invest in new startups each quarter. In effect, you invest in eight different subfunds. I learnt about Unpopular Ventures from an episode of Meb Faber's podcast, which featured an interview with Peter Livingston, one of the general partners. The attraction of this fund are: 

• It has good historic returns.
• Meb is an investor, which I see as a good sign.
• It not only invests in the US but also in other countries, and in particular, developing countries and regions like India and Latin America. These regions are not as competitive for venture capital as the US market and so it should be able to get into investments at better valuations in theory. I guess exits might not be as highly valued either... but diversification is good.

Until now, we only had venture capital investments in Australia through Aura Ventures funds and the listed Wilson Asset Management Alternative Assets Fund (WMA.AX).

New Trade: Pendal

I bought a position in Pendal (PDL.AX). Yesterday, they announced that they got a takeover offer from Perpetual (PPT.AX) for the equivalent of AUD 6.23 per share. The price isn't a constant as it is about 2/3 in terms of Perpetual shares. The stock was trading around AUD 5.25 after being higher yesterday, but PPT was trading up on yesterday. Analysts say the stock is undervalued and a strong buy after falling a lot in the last year, prior to the bid. So, I didn't see  lot of downside in this. 

In other news, URF.AX is now up to AUD 0.24, 10% above the AUD 0.22 that investors are supposed to eventually receive. I can't sell as my shares are in transit from Interactive Brokers to Commonwealth Securities. They have now left Interactive Brokers, but haven't shown up yet at CommSec...

Domacom Appoints New Chairman and CEO

Good news at Domacom (DCL.AX). They announced today that they have appointed John Hewson as chairman and John Elkovich as the new CEO. Hewson is chairman of Crescent Finance who are collaborating with Domacom on Islamic mortgages. Domacom has interesting products but has struggled to get enough funds under management to breakeven. They need 5-10 times as much FUM to become profitable. So, though they have seen nice growth in FUM recently, 40% p.a. growth just doesn't move the needle that quickly. My hope has been that the company would be acquired. It's good to see that some other experienced people believe in the product.

I can see scope for improving the fractional investing product. I find the financial information provided on existing investments to be unclear and non-transparent. The level of explanation really needs to be stepped up to make secondary investors willing to participate and increase market liquidity in my opinion. I have only invested in one secondary investment, which is now exiting. I signed up to several "campaigns" but there is glacial progress on raising funds for them. I just discovered that two of them seem to have given up and released the pledged cash back to investors.

Hopefully, these things will improve going forward. Maybe I should send the new chairman (who is my honorary colleague) a letter with my thoughts :)

March 2022

World markets rebounded with the MSCI World Index (USD gross) rising by 2.22%, the S&P 500 by 3.71%, and the ASX 200 rising by 7.10%. All these are total returns including dividends. The Australian Dollar rose from USD 0.7248 to USD 0.7494 reducing Australian Dollar returns and increasing USD returns. We gained 1.89% in Australian Dollar terms or 5.35% in US Dollar terms. The target portfolio rose by 0.75% in Australian Dollar terms and the HFRI hedge fund index is expected to rise 1.11% in US Dollar terms. So, we under-performed the ASX200, but outperformed all the other benchmarks. 

Here is a report on the performance of investments by asset class (currency neutral returns in terms of gross assets): 

Real assets, gold, and rest of the world stocks lost money, while other asset classes gained. Real assets were negatively affected by the URF debacle. Rest of the world stocks were negatively affected by the China Fund. Gold fell in Australian Dollar terms, though the USD price rose. Futures performed best, and hedge funds contributed most to performance.

Things that worked well this month:

• The three top performers were all hedge funds: Tribeca Global Resources (TGF.AX) gained AUD 35k, Regal Funds (RF1.AX) AUD 30k, and Pershing Squre Holdings (PSH.L) AUD 27k. These were followed by the Winton Global Alpha Fund with an AUD 14k gain.
  

What really didn't work:

• URF.AX lost AUD 22k when the fund announced they were selling their portfolio at a discount. Gold was second worst with an AUD 19k loss.
  

The investment performance statistics for the last five years are: 

The first two rows are our unadjusted performance numbers in US and Australian Dollar terms. The following four lines compare performance against each of the three indices over the last 60 months. We show the desired asymmetric capture and positive alpha against the ASX200 and the MSCI but not against the hedge fund index. We are basically performing like the average hedge fund levered 1.64 times.

I adjusted the leverage on the URF.AX investment down to 1:1 in our gross asset allocation as it is supposedly no longer exposed to movement of the actual real estate portfolio. On the other hand, since the end of the month, the share price has bounced back above the 22 cents which shareholders are supposed to receive as a distribution later this year while the convertible bonds are trading at an 18% discount to face value. This suggests that the market doesn't think that the stated deal is final. After all, URF shareholders need to vote on it.

This changed our asset allocation a lot. Real assets are now the most underweight asset class and hedge funds the most overweight. We moved nearer to the target allocation. Our actual allocation currently looks like this:

70% of our portfolio is in what are often considered to be alternative assets: real estate, art, hedge funds, private equity, gold, and futures. We receive employer contributions to superannuation every two weeks. In addition we made the following investment moves this month:

• I sold AUD 125k in exchange for US dollars.
• I sold 2,000 shares of PMGOLD.AX equivalent to 20 ounces of gold.
  
• I sold 1,000 shares of Fortescue Metals (FMG.AX). 
• I sold 10,000 shares of URF.AX. Only 5% of our position. 
• I sold 7,039 shares of RF1.AX.
  
• We are exercising the rights distributed by Pengana Private Equity (PE1.AX).
• I am preparing to invest in a venture capital fund on the AngelList platform. I was trying to invest through our SMSF but that ran into problems...
  

Related-Party Asset

I have been trying to invest in a fund on the AngelList venture capital platform. But my SMSF administrator flagged that there might be issues because the fund is organized as a limited partnership. The auditor has now provided the following information:

"A partnership can elect to be taxed as a Limited Liability Company (LLC) in USA or a partnership under the tax law due to the elections that the LLCs make with the US Internal Revenue Office. It is common for such partnerships (US) to be taxed as a company.

To support compliance with SISA/SISR for investments in Limited partnerships we note the following potential scenarios and information for audit purposes:

1. Where the entity is taxed as an LLC, this supports that the LP should be treated as a company where the members of the Fund are not members of the LP and the investment therefore is considered as an investment in an unrelated entity. This is usually able to be ascertained from the financial report of the LP. 
2. Where the entity is taxed as an LP, and the members of the fund are not members of the LP, and the investment is in within a limited capital account arrangement. This is usually able to be ascertained from the financial report and the application agreements. 
3. Where the entity is taxed as an LP, and the members of the fund are members of the LP.

If the investment falls into scenario 2 and 3 then the investment would classified as an in-house asset which would mean it needs to be below 5% of the SMSF’s total assets."

It seems that this falls under scenario 3. I just sent AngelList an email to check. The problem is that the minimum investment required, let alone subsequent hoped for appreciation, would take us over the 5% limit. So, it seems it is not really true that you can invest in anything you like through an SMSF. It seems silly to me to treat a fund where I am only investing through the SMSF along with 1500 other investors as a "related-party asset". Probably, I will need to invest in this fund using my own name and pay higher tax than I would through the SMSF.

Still Trying to Transfer Shares

So, I have been trying to transfer our holdings of listed investment trusts from our SMSF's Interactive Brokers account to a new account I set up with Commonwealth Securities. I first sent the required form to Commonwealth Securities 6 weeks ago. After nothing happened for three weeks I emailed them again. They then sent me the next day a text message telling me to phone. They told me that I needed to change some details on the form. I sent a new form in. Again nothing. Yesterday, I again emailed them. Today, they again texted me and I phoned them. They said that Interactive Brokers were not accepting the transfer and I should initiate it at that broker instead. I have just done that. All online of course, no paper forms required. Let's see if it works. I don't want to have to sell and rebuy the shares again as there is a AUD 34k capital gain plus two sets of commissions and slippage. 

But this service from CommSec where they just forget about the request for 3 weeks until they are reminded again is really not good!

P.S. 6Apr22

Success! The shares have arrived at CommSec.

Another Sale and a Failed Auction

Following the recent record gain on a townhouse, a freestanding house sold in our development last Thursday but the price hasn't been disclosed yet. On Saturday, there was an auction of another townhouse. I went to the auction and there were no bidders. The condition of the property wasn't that great. 

P.S. 29 March

The townhouse has been listed at "offers above $829k".

URF Selling Property Portfolio

The U.S. Masters Residential Property Fund (URF.AX) announced they are selling their property portfolio at a discount. As a result, they will pay out URFPA holders at the AUD 100 face value of the units, but ordinary equity owners of URF.AX will only get 22 cents per unit.

I didn't manage to get out in the initial auction and the price is now at 20 cents. I am down AUD 25k for this month and a AUD 15k loss overall at this point. This is my 5th worst trade or investment ever at this point.

However, this is a 10% return from here and so I guess I will hold for the moment. That will turn it into the 10th or 11th worst investment.

This was always a speculative investment and so I didn't invest too much in it. It represented 1.36% of net worth not including our house prior to this announcement. However, there are still some lessons to be learned:

1. When they recently said that they were likely going to sell the portfolio at a discount I should have sold then.

2. I should have invested in the URFPA units all along. I was put off investing in them because of their complicated structure/conditions. But they were safer than URF.AX and had a lot of potential upside.

3. There's often a good reason why the market seems to undervalue an investment. Turns out it didn't undervalue it enough, though!

4. Still, the 5th and 10th best investments have made roughly 10 times what this has lost at the moment.

In other bad news, Domacom settled the dispute for only AUD 2.5 million. That will only last them 6 months...

New Record Gain for our Development

 This townhouse sold for AUD 835k:

That is a 101% gain on its original 2008 sale price, the largest gain to date in our development. This is also more than the AUD 740k we paid for our house. I added all the townhouse sales to my valuation model and it comes up with a value of AUD 1.307 million for our house for 2022. Of course, this is based just on this single sale for 2022. But there is another auction coming up later this month, which will provide another datapoint. I use a single value for our house for a year at a time. This new value also pushes us over another big round number networth wise, which I once thought we wouldn't reach till the end of 2024.

February 2022 Report

World markets fell but the Australian market rose with the MSCI World Index (USD gross) falling by 2.55%, the S&P 500 by 2.99%, and the ASX 200 rising by 1.66%. All these are total returns including dividends. The Australian Dollar rose from USD 0.7063 to USD 0.7248 reducing Australian Dollar returns and increasing USD returns. We lost 1.10% in Australian Dollar terms but gained 1.49% in US Dollar terms. The target portfolio fell 2.38% in Australian Dollar terms and the HFRI hedge fund index is expected to fall 1.09% in US Dollar terms. So, we under-performed the ASX200, outperformed the other benchmarks.

It was a bit calmer month despite war breaking out in Ukraine at the end of the month. We continued to work on setting up a second brokerage account for the SMSF and transferring our holdings of listed investment trusts into it.

Here is a report on the performance of investments by asset class (currency neutral returns in terms of gross assets): 

All the equity categories lost money, while all the others gained. Gold both performed best and added the most to returns. US stocks was the worst performer while hedge funds detracted most from performance.

Things that worked well this month:

• Gold gained AUD 26k. WAM Alternatives (WMA.AX) and URF.AX were the next two best performers, gaining AUD 10k and AUD 6k, respectively.
  

What really didn't work:

• Hearts and Minds (HM1.AX)  and Cadence Opportunities (CDO.AX) were the two worst performers, losing AUD 13k and AUD 11k, respectively.
  

The investment performance statistics for the last five years are: 

The first two rows are our unadjusted performance numbers in US and Australian Dollar terms. The following four lines compare performance against each of the three indices over the last 60 months. We show the desired asymmetric capture and positive alpha against the ASX200 but not so much against the other two benchmarks, which are measured in USD terms.

Our asset allocation did not change much. Private equity is still the most underweight asset class and real assets the most overweight. Our actual allocation currently looks like this:

70% of our portfolio is in what are often considered to be alternative assets: real estate, art, hedge funds, private equity, gold, and futures. We receive employer contributions to superannuation every two weeks. In addition we made the following investment moves this month:

• As the gold price rose, the share of gold in gross assets went over 10% and following policy I sold 500 shares of PMGOLD.AX to bring it back to 10%. 
• I sold 1,000 shares of Fortescue Metals (FMG,AX). Should have sold more...
• I opened a new position in WAM Leaders (WLE.AX), buying 20,000 shares so far.
• I bought 6k shares in Pengana Private Equity (PE1.AX) when the price was low.
• I sold 3k shares of Regal Funds (RF1.AX) to fund this.
  
• I heard that our investment in Doyle's farm through Domacom will be wound up and sold. The majority of holders voted to do this. This is my only active investment through Domacom, so a bit disappointing. Hopefully, we won't lose too much considering selling costs and that we have had very little upside so far in this investment. The management company, Domacom (DCL.AX), also doesn't look like relisting on the ASX any time soon.
• On the other hand, Masterworks sold their second painting, which turns out to be one I hold.