Amid all the constant excitement about new launches, investors shouldn’t ignore the very long list of veteran funds out there, especially those that have fallen out of favour. Near the top of this list is EPE Special Opportunities (Aim: ESO).
This is a listed private-equity vehicle that, on the face of it, looks a bit like Better Capital, Oakley Capital and HgCapital – funds that invest in fast-growing private businesses. But in reality, EPE is actually more like a special situations vehicle – a value fund that looks to invest in “distressed” companies poised for a turnaround, or change that is yet to be priced in by the market.
At the moment, EPE has two huge assets weighing on its share price. The first is a 24% stake in a London-listed LED lighting business called Luceco (LSE: LUCE), which has taken the market by storm. I know next to nothing about this international lighting business except to say that it seems well run, and has attracted a loyal investor base.
Luceco is valued at £395m, and EPE’s stake in it is valued at £90m – not far off the market capitalisation of the fund itself, which is currently almost £99m. Oh, and then there’s a cash pile worth £31.3m. Add together the cash and that Luceco stake, and we are already at £121m. EPE also owns a few other assets, including tea and coffee retailer Whittard of Chelsea, plus stakes in online pharmacy, Pharmacy2U, and a private debt fund.
EPE’s other assets, especially Whittard’s, have real value, but for now, the fund’s share price will be moved up and down by the huge value of its holding in Luceco. Arguably, the best way to value EPE is to disregard its cash holding, and instead compare the book value (the value of a company’s assets minus the value of its liabilities, as found on its balance sheet) of the remaining assets with the share price. Once you do this, you end up with an enormous 40% discount to net asset value (the value of the underlying portfolio).
The problem with relatively unknown specialist funds such as EPE is that there’s always a lot that could go wrong. For example, Luceco could be hit by problems in Asia, as it has large operations in China. Or the fund’s managers could spend its cash mountain on a bad investment (although their bet on Luceco doesn’t seem to have gone too wrong so far – it’s up 56% over the past year).
Admittedly, EPE hasn’t been enormously lucky so far, boasting failed bank Lehman’s as an initial 40% shareholder a few years back. The senior management of the fund now controls at least 25% of the share base, and in effect has control of the fund. But a few more active shareholders have emerged on the register recently, not least Miton Global Opportunities, whose manager Nick Greenwood has a record of gently pushing funds to “get their act together” and boost the share price.
Activist watch
Credit Suisse, Switzerland’s second-largest bank, is being targeted by a little-known local activist investor with a 0.2% (CHF100m) stake in the company, reports Bloomberg. Rudolf Bohli, who manages CHF200m at RBR Capital Advisors, has called the bank a “misunderstood jewel” with an undervalued wealth-management business.
He met recently with senior managers to discuss his ideas, which include breaking the lender up in to three parts, separating the investment bank from private banking units. Although the FT reported that a former co-head of Credit Suisse’s investment bank is supporting Bohli, the move has been described as a “storm in a teacup” by Andreas Brun, an analyst at Mirabaud Securities.
In the news this week…
• Hargreaves Lansdown customers could be paying up to four times more than they need to for their funds, reports The Sunday Times. Of the 2,070 funds sold by HL, around 550 have cheaper versions – usually products that were launched after 2013’s Retail Distribution Review – that are less costly versions of the same investments. However, investors must ask to be switched to these cheaper options.
For example, someone who holds the Fidelity Multi Asset Allocator Adventurous fund and pays an annual fee of 1.2%, could actually hold the same fund for 0.28%. Although other platforms, such as Fidelity Personal Investing and AJ Bell Youinvest, automatically switched clients to the cheaper versions, HL said that they don’t do this unless people pay the provider for advice. It does however write to customers “regularly” to tell them that there are different versions of the fund available.
• Asset manager Polar Capital has launched a fund that aims to give investors exposure to the growing commercial use of robots and artificial intelligence (AI), says Michelle McGagh on Citywire. Polar Capital Automation and Artificial Intelligence will invest in industrial automation, AI, robots and materials science, with a portfolio of 50 to 80 stocks. It will charge 1.3% a year, plus a 10% performance fee when it beats its benchmark, the MSCI All Country World index.