Wilson Asset Management

WAM Strategic Value Q&A

Geoff Wilson AO recently held a webinar where he shared his vision for WAM Strategic Value (ASX: WAR) and answered questions from the Wilson Asset Management Family.

Below is summary information only. For full details, please see the WAM Strategic Value prospectus.

Why are you setting up WAM Strategic Value?

If you look at the history of modern investing, one of the greats is Warren Buffet. He, like all of us, loves buying $1 of assets for 80c,

This is what WAM Strategic Value Limited (ASX: WAR) aims to do. Myself and the team at Wilson Asset Management will be investing WAM Strategic Value’s capital in these discounted asset opportunities, primarily listed investment companies (LICs) and listed investment trusts (LITs) trading at a discount to their underlying asset values. We will be working with the investee companies to assist in closing their share price discount to net tangible assets (NTA).

Will you only invest in listed investment companies and listed investment trusts?

LICs and LITs will be our main focus, complemented by other market mispricing opportunities arising within the corporate sector, such as takeovers or capital raisings, where we are able to utilise our position as an institutional investor responsible for more than $4 billion of shareholder capital.

Will I get my full allocation and will you take oversubscriptions?

We are looking to raise $225 million at $1.25 per share. It is approximately 10 times the amount of money that WAM Capital (ASX: WAM) raised about 20 years ago. A lot of people have asked us why we are not raising more than that, and suggested we would have demand for more. We think $225 million is a very manageable pool of capital, we are happy to grow from that starting point, and perform over time. $125 million has been put aside for the Wilson Asset Management Family.

Unfortunately, we cannot assure anyone of anything and ultimately the Board reserves the right to accept, reject or scale back any Application, in its absolute discretion. If the Offer is oversubscribed, the Board and I will endeavour to exercise our discretion, as much as possible, to ensure the allocations are fair and equitable. Personally, I do not like applying for something and not getting it, and understand no one really likes that.

How did you come up with the WAM Strategic Value name and the WAR ASX code?

We asked all our 41 staff at Wilson Asset Management for their ideas, after explaining our plans to buy discounted, undervalued assets and return them to NTA. The response was fantastic. We chose ‘strategic’, because when we are taking positions in companies, it can often be of a strategic nature. We chose ‘value’, because that is what we are looking for on behalf of our shareholders.

You will be the Lead Portfolio Manager for the fund, but who else at Wilson Asset Management will be supporting you?

I am excited to manage the investment portfolio, as Lead Portfolio Manager, with support from the broader Wilson Asset Management investment and management team.

Together, the Investment Team and I have over 190 years’ collective investing experience gained across Australian and global listed equities and alternative assets. Our Investment Team is supported by 27 high-performing professionals who work across the corporate affairs, finance and operations teams. They are tasked with delivering shareholders transparency, insights and experiences, adding discipline, depth and reach to Wilson Asset Management’s core business and supporting the WAM Strategic Value Investment Strategy.

We work closely, as a team, and we are always throwing ideas around. Our Chief Financial Officer Jesse Hamilton and our Head of Operations and Key Account Manager Martyn McCathie have also worked closely with me in discounted asset plays.

Do you envisage that WAM Strategic Value will pay fully franked dividends, and what is the expected yield?

Definitely, provided the Company has sufficient profits reserves and franking credits available and it is within prudent business practices to do so. It is one of the Company’s investment objectives to deliver a stream of fully franked dividends to investors. With our LICs, we pass any fully franked dividends we receive from the companies we invest in onto shareholders. Also, we pay tax on any profit that we make, and we try to enhance those dividend yields and pass them onto shareholders.

Have you already identified targets for the portfolio?

We are looking at all the LICs or closed-end funds all the time.

For the initial portfolio, the Company will have an ability to buy discounted LIC or LIT securities from our other WAM funds. There are currently fifteen LICs which could be purchased by the Company and they are all at different levels of maturity. This number is dynamic and will continue to change during the Offer period.

When fully invested, the Portfolio is expected to comprise an average of between 10 to 30 securities.

Will liquidity be an issue when investing in LICs and LITs during times of market volatility?

Liquidity is always an issue. One of the various reasons that I like LICs is because as a manager, you have a closed-end pool of capital, meaning you are never forced to buy and you are never forced to sell. If you are not a forced buyer or seller, that is a strong position to be in.

Long before I set up Wilson Asset Management, I was invigorated by research from Morgan Stanley. It showed that a closed-end pool of capital, known as closed-end funds in the US, outperformed the open-ended pool of capital, known as mutual funds in the US, in the order of 1.5% to 2.0% per annum over a 50-year period.

WAM Strategic Value will be a listed entity and the ability to sell shares will be a function of the turnover of the shares at the time of sale. Turnover itself is a function of the size of the Company and also the cumulative investment intentions of all current and possible shareholders in the Company at any one point in time.

How long have you been investing in discounted assets?

Since I started in 1980 at Scottish Amicable as a trainee in the investment department, I have liked the idea of always trying to value a company. When I look at a company, I read the annual report and get straight to the numbers. In doing so, I can get an idea of what I think the company is worth.

If you have a closed-end fund that owns other listed entities, it is very easy to work out what that company is worth. You can do this on a per share basis and the price it is trading at. If there is a big discount, you then question if there is a catalyst or an event that is going to change that valuation to drive it from a discount to NTA, to a premium to NTA. That is the opportunity we are always looking for.

Since the early 1980s I have been doing that personally, and as a business, we have been doing it since we set up Wilson Asset Management more than 20 years ago.

Are you considering investing in WAM Strategic Value yourself?

Yes. I plan to invest $5 million in WAM Strategic Value, through associated entities.