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Are the clouds clearing for the Blue Sky share price?

The Blue Sky Alternative Investments Ltd (ASX: BLA) share price is up 14.7% this morning after providing guidance for its first-half FY19 results, which are set to be released on 27 February. After months of perdition, today’s market update has clearly improved investor sentiment as the fund manager continues to attempt to find its feet.

Management expects an underlying loss before tax in the range of $28 million to $32 million, with earnings being dragged down by balance sheet write-downs, restructuring costs, and reimbursements.

The embattled alternative investment asset manager has seen its share price drop from a 52-week high of $14.35 to its current price of $0.68 after US hedge fund Glaucus released a report in March outlining its short thesis on Blue Sky.

Glaucus claimed that Blue Sky vastly overstated its assets under management and misrepresented the performance of its investments while charging investors extortionate fees.

Glaucus had caught a whiff of something rotten, and it turned out to be right. Blue Sky executives dropped like flies as the extent of deception became evident. Huge write-downs wiped away earnings and the company began a comprehensive restructure.

Questions of distress arose as Blue Sky’s cash looked to be drying up fast, but distressed-debt fund Oaktree Capital Management came to the rescue with a $50 million leg-up loan.

Today’s announcement showed that, including the $50 million draw-down, end of period cash stood at $54.8 million. Blue Sky said: “The primary drivers of the cash position relate to abnormal expenses, restructuring expenses, fund expense recovery payments and further working capital loans, investments and co-investments of alignment capital with institutional investors in real assets and a US energy storage investment.”

End of period Net Tangible Assets (NTA) is expected to be in the range of $102–106 million, including a $22 million impact from the adoption of new accounting standards.

Blue Sky exited its hedge fund business and terminated its retirement living real estate development projects. Significant cost-cutting efforts have seen headcount reductions across all remaining divisions. The company is continuing to work towards improving its investment operations, governance and risk structures.

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Motley Fool contributor Cale Kalinowski has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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