The $17 million minnow Wentworth Holdings (ASX: WWM) is progressing towards its transformation into an investment vehicle backed by Mr Alex Waislitz’s Thorney Investment Group with the recent signing of an Implementation Deed.
As Thorney is a private company, there is little publicly available information about its investment track record, however according to an interview published in the book Masters of the Market, between 1991 and 2003 Thorney reportedly produced investment returns of “at least 20 per cent each year.”
As part of the proposal in relation to Wentworth a capital raising of $50 million will be undertaken and Thorney will be appointed investment manager with Mr Waislitz appointed Executive Chairman and Chief Investment Officer. Commenting on the proposal Mr Waislitz said: “After more than 20 years investing in a purely private capacity, I am excited by the opportunity of providing public access to the skills and experience of the Thorney team and pursuing absolute returns for shareholder’s over the medium to long term.”
Like a number of other externally managed companies, it is important for shareholders to be aware of the fees charged by the investment manager. For example, shareholders in Platinum Capital (ASX: PMC) are charged a management fee of 1.5% per annum plus a 10% performance fee when returns exceed the benchmark plus 5%. In the case of Thorney’s arrangement with Wentworth the proposed management agreement involves an initial term of 10 years plus a seven-year option, a base fee of 1.5% on gross assets and a performance fee calculated as 20% of the increase in net assets for the financial year after deducting the base fee.
Unlike Platinum Capital’s structure, which adjusts the performance fee for any underperformance, there would not appear to be any high water mark requirement for Thorney as suggested by the statement that “no shortfall is relevant for the calculation of performance fees for subsequent financial years.”
As Warren Buffett has said time and time again, quality management is a key ingredient in investment success. Following successful businesses people into new ventures can on many occasions work well for investors, however as the proposed fee structure for Thorney shows, the terms are rarely as good for the general investing public.
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Motley Fool contributor Tim McArthur does not own shares in any of the companies mentioned in this article.