Firetrail Investments scraps LIC initial public offer
Firetrail Investments has scrapped a planned initial public offering for ordinary shares in listed investment company (LIC), Firetrail Absolute Return Limited, after it was found there would be significant concentration risk given the small number of investors who would have owned most of the company.
The decision was made despite the company exceeding its minimum investment amount of $73.5 million early in the offer period, as well as strong outperformance of the strategy amid the recent market volatility, the boutique equities manager said.
Firetrail managing director Patrick Hodgens, said that LICs which do not have a well-diversified shareholder base are at higher risk of the share price trading at a discount to net tangible assets.
“Whilst we were pleased with the strong support from a number of investors, our view is that the increased volatility in equity markets over the past week, combined with a large number of LIC raisings this year, have had an impact on the broader LIC market,” Hodgens said.
“As a result, we do not believe there will be enough demand in the final week of the raise to appropriately diversify the shareholder base of the company.”
The IPO offer period was originally scheduled to close on Friday, 19 October 2018.
The Firetrail Absolute Return Fund, the objective of which is to deliver positive absolute returns above the RBA cash rate independent of movements in the underlying share market, has delivered a positive return of about 1.3 per cent since 8 October 2018, while the share market has fallen over 4 per cent over the same period.
“The strategy is designed to be uncorrelated to the underlying share market and has delivered during the recent equity market volatility, outperforming the Australian equities market by approximately 5 per cent over the past week,” Hodgens said.
He said that investors who want access to this strategy can still invest via the Firetrail Absolute Return Fund, which is open to new investors.
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