We received our Audit this week (.pdf), confirming the issue price (of $1.60232) for shareholders adding to their holdings and new shareholders. We were fortunate in a week where the market declined by 0.7% to rise by approximately 0.4% to a new all-time high of $1.61239.
I find myself answering a range of questions frequently, so thought it would make sense to add a “Frequently Asked Questions” page to the blog. This page will be edited occasionally to add any new questions. In no particular order:
- Is the 3-5% ‘outperformance reference in the "Investment Principles and Shareholder guide" a target expectation or a performance hurdle above the ASX 200TR?
It's a target expectation. If EGP beat the market by 1%, I would earn 0.2%. If I beat the market by 5%, I would earn 1%. There are no guarantees, but based on history, I feel I can generate that level of performance above the general market.
- Does the Fund has a high water mark and if so, does that reset at each 6 month period or is it open ended?
Yes. If I underperformed the index by 10% in a period & the benchmark advanced 10% in the next period, I would need to progress EGP's NTA by more than 21% in that period before I would earn a fee. If the fund declined, it would have to get back above the highest period end value to earn a fee.
- Why has the Fund chosen 6 monthly instead of annual performance paydays?
Initially it was because I wanted to have 2 periods to invest/withdraw & it seemed obvious that the calculations and audits should be done at this time. After numerous investors expressed the wish to add funds at more regular intervals, I added the March 31st & September 30th entry points. I should probably have added fee-points at these dates, but it would have added an extra 2 audits per-annum, and the cost to do that seemed foolish.
- Why does the fund restrict entry/exit point to 4 times per year?
Firstly, these are simply the ‘formal entry points’. At my own discretion, I will take on additional investors at other periods, and as per the ‘Investment Principles’ document, you may exit at any time.
Until about 9 months ago, it was only 2 entry/exit points but investors said 6 months was a long time ‘between drinks’. There were 3 primary reasons for the use of limited subscription windows. The first being that I want investors to think of their investment with EGP as a longer term commitment, I want them to not try and time their way in or out when they think the market is (or will be) up or down based on the media or some other external factor. Secondly, because of our Pty Ltd structure, every time I get a new investment/redemption, I have to log into ASIC & issue new shares, I prefer if possible to do this infrequently. Thirdly, I wanted the rigour of an external Audit to confirm the shares were issued at an audited price, after a series of audits have confirmed I know how to divide our total assets by total shares on issue, I am comfortable that our investors know a correct figure is being reported, and as such I am happy to issue equity in decent amounts at pretty much any time, but between the 4 formal entry points, unless someone was hoping to commit a 6 figure sum, I would encourage them to wait until the next entry point (3 months is really a blip on the radar).
I would like to set up something where people can make an initial investment and then have a weekly or monthly contribution, but we just don’t really have the systems in place to support it. Part of the way I keep the administrative costs so low is by keeping the administration so simple.
- Is the "cost base" for the shares issued to the investment manager (Eternal Growth Partners Pty Ltd) the actual share price as calculated at the end of each of the 6 month periods?
All shares issued to Eternal Growth Partners Pty Ltd have been issued at the same price as the investors paid at each respective interval. That will always be the case.
- The website contains recent audit reports but there are no financials attached just pro-forma statements with references to profit and loss statements but none attached. Do subscribed shareholders get to view the full reports?
A full set of financials will be issued annually to holders by e-mail, around October each year when the Annual Tax Return is complete, however the names of the holdings are blacked out.
- There was a reference to Dave Grant in the funds early history, but you [Erik A. (Tony) Hansen] seem to be the key man, as such what would occur should something very bad happen to you.
Dave Grant left EGP after the first quarter, cashing out 30 June 2011. I don't edit the blog as I think the permanent record should remain, you should never try to change history. I am very intense about the commitment required to run this operation and Dave's life had no time for the level of commitment I expected.
My Wife (Susan Hansen) and my Brother (Adam Shaw) are the other 2 directors of the responsible entity (Eternal Growth Partners Pty Ltd) and have strict instructions as to how to handle my untimely demise, should that occur. My friend and Lawyer Peter Phan who runs a similar fund (Castlereagh Equities started November 1 2013) is to be appointed to sell the holdings down in a timely fashion that maximises the value and distribute the cash and franking credits to the equity holders. Investors wanting to transfer some or all of their EGP Fund No. 1 Pty Ltd stock to Castlereagh Equities will have that option (these are my instructions to my Wife). Over time, I hope to have established a means by which the 'Eternal' part of the business name can be properly realised, but that is not yet resolved.
- With regard to your research do you rely solely on the internet, discount cash flows annual reports and AGMS or do you call and visit the business too?
We currently hold 18 stocks. I have attended 7 AGM's in the last 12 months and communicated by e-mail with a number of the company managements (and managements of some companies we don't own) and visited the operations of a few too. My valuation methods depend very much on the business examined. For some, DCF is useful, but for companies with large assets (low price/book), or unusual businesses, other techniques can be more appropriate. Cash flow tends to be the metric I pay most attention to and low/no debt another desirable characteristic.
- Does the fund ‘short’ stocks?
No, and I doubt that we will in the future, but presented with a really special opportunity, I would consider it. There is plenty of profit to be made over time on the ‘long’ side.
- Are you still targeting a shift from a private investment company to a retail fund in 2016, and when/if this happens what would it mean for existing shareholders?
I am still considering the form of the company into the future. I abhor the 'Listed Investment Company' concept as they so often trade at a material discount to NTA (or premium, which is about equally absurd). The one imperative of any future structure is that investors must always be able to exit at a fair NTA. 2016 will see us reach a 5 year track record, which provided we continue to generate sound results should be highly marketable, but it will have to be a system by which there will be no disadvantage (such as a Capital Gains Tax event) for present investors. If we get to a level of Funds Under Management that I am happy with, and investors are happy with the current structure, I would consider continuing in the same format. I intend to close the fund once we reach $20m in external capital (disclosed in the December 31 2013 quarterly report (.pdf)) so I will be able to compound a relatively small pool at a high rate for a long time and leave an enviable and lasting record.
- What are your general views on the percentage/proportion of net wealth you are comfortable with shareholders investing with your fund?
My Wife and I have 83.9% of our Net Worth or 64.1% of our Gross Worth (As at January 1 2014) in the fund, my children have virtually 100%, this helps keep me focused on downside risks. However, and I have told a number of people similarly of late, I would advise a family member allocating their 'equity exposed' (and the total level of equity exposure as part of your total investment portfolio is something you'll need to decide for yourself) assets to split it into perhaps 4 chunks of roughly 25% each. One should be in a low-fee, liquid 'market-tracking' asset such as the ASX200 tracking 'STW' ticker code. The other 3 would do well split between 3 fund-managers, each whom you believe likely to out-perform the index over the long-term (preferably with somewhat different styles). I am usually hesitant to make recommendations, but there are good ones out there, the fee-structure will tell you a lot about the integrity of the manager. I believe over 20 or 30 years, any equity attributed to EGP will end up growing faster than most others, so the allocated EGP proportion will I expect grow. If you decided to send me 100% of your equity exposed assets, I will manage them with the same level of care I would if you sent me 1%, but prudence requires I suggest a smaller proportion. Also I would recommend against piling greater than about 25% of your assets into equity exposure all at once too, a staged entry is best.
- What is your maximum investment?
I have lately decided I will have a maximum (external) investment of $1 million. My Wife and I have a good deal more than this in the fund and it is my intention to remain the largest shareholder of EGP Fund No. 1 Pty Ltd. The intention when opening the fund was not to take a lot of very rich people and make them richer, but rather to take a lot of people of more modest means and help them establish a very secure, comfortable future.
- How much shareholder money does the fund manage?
As at January 1 2014, a little over $2 million.
- How many shareholders does the fund have?
After the last intake, 27 investors. All but a few of whom are family, friends & ex-colleagues.
- Have you any plans to privately manager money for individual investors?
No. Anyone wanting to invest will need to join the fund. This will sound like a hubristic statement, but I am not really taking on the management of others assets to make money. I do it for 2 key reasons.
Firstly, I want to leave a record 35 or 40 years long matched by few.
Secondly, I genuinely want to help a small number of people do very well, I hope people look back in 30 or more years' time and realise I changed the financial path of their family for generations. That may seem a big statement, but that's the driver.
I already consider myself quite rich, I could just manage my own funds and I am confident I will be a billionaire by 80 (I still have 43 years of compounding before then). My decision to run EGP will probably ensure I am less wealthy than I would otherwise have been if I had simply worked at a high-paying job, saved and invested on my own.
These cover a number of the frequently asked questions, anyone who asks me any other good ones will likely find them added to this list – Tony Hansen 11/01/14
|
|
Apr 1st 2011 |
Jan 1st 2014 |
Current Price |
Current Period |
Since Inception |
|
EGP Fund No. 1 |
1.00000 |
$1.60232 |
$1.61239*1 |
0.63% |
65.34%*2 |
|
35632.05 |
44635.11 |
44302.95 |
-0.74% |
24.33% |
EGP Fund No. 1 Pty Ltd. Up by 0.63%, leading the benchmark by 1.37% since January 1st. Since inception, EGP Fund No. 1 Pty Ltd is Up by 65.34%, leading the benchmark by 41.01% all-time (April 1st 2011).
*1 after 31May 2013 dividend of 2.333 cents per share plus 1 cent per share Franking Credit
*2 calculated based on dividends reinvested
