I have ‘banged the drum’ before in regards to my opinion on IPO Wealth but in this current climate there are real risks to the value of their unlisted portfolio of assets.
The IPO Wealth “brand” has been somewhat left in the background recently as Managing Director James Mawhinney continues to launch a marketing offensive across several other associated financial “brands”. As the founder of the ‘family owned investment conglomerate’ Mayfair101, Mawhinney has been in the media spotlight just this week for suspending the purchase of further properties on Mission Beach. This follows the company’s purchase last year of North Queensland’s iconic Dunk Island. In this current climate, where travel related stocks like Webjet and Flight Centre have fallen over 75%, you would have to question the real valuation of these holiday assets.
Which brings us back to IPO Wealth, the flagship fund of Mayfair101. When an investor subscribes for ‘term based investments’ with IPO Wealth they purchase units at $1.00. These funds are then loaned to a related party IPO Wealth Holdings Pty Ltd ,which then invest in direct equity positions or convertible note structures over a portfolio of around 30 unlisted companies. While portfolio transparency is poor, these companies appear to represent assets such as Dunk Island (and associated Mission Beach properties), and a host of companies involved in everything from crypto currencies to mining, media and data. The value of the $1.00 unit should reflect the value of the loan to those unlisted assets.
In looking through the annual reports provided by Vasco Fund Services – IPO Wealth’s Trustee – the unit price has remained at $1.00 since June 2018. This could be correct, given that the unit price can never be more than a $1.00 because of the performance fee structure giving Mayfair101 any revaluation upside:
‘The Withdrawal Price may be less than $1.00 but will never be more than $1.00, given the structure of the performance fee payable to the Investment Manager.’
Of more concern, which I highlighted back in March 2019, is if the portfolio has to be devalued, as outlined below in the offer document:
‘….the Unit price can be less than $1.00 if the Fund’s assets decrease in value, but cannot exceed $1.00. The value of your investment is not guaranteed.’
The question now has to be, given the current investment crisis, what is the real value of the unlisted portfolio? In a rare investment update (March 16 2020) James Mahinney stated:
“The Group’s focus on unlisted assets means a lower susceptibility to volatile valuation fluctuations, which has proven a sound strategy following the COVID19 outbreak.”
From a risk perspective it is incomprehensible to consider that an illiquid portfolio is subject to lower risk simply because those assets aren’t valued frequently. The real risk for investors is that very illiquidity because, if market conditions persist, a run of withdrawals could see restrictions on redemptions, as stated in their offer document :
“the Trustee also retains broad discretion to restrict distributions, withdrawals and redemptions.”
When market dislocations of this magnitude occur, all asset classes correlate and there isn’t an industry on the globe that won’t see its asset base devalued. If a unit price devaluation doesn’t occur post their 2020 financial year audit, the IPO Wealth fund will represent a very rare investment offering to survive this turmoil unscathed. If a devaluation does occur then no marketing spin will stop the rush of redemptions running for the door. It’s only a matter of time.