Blue Sky Alternatives Access Fund Ltd (ASX: BAF) investors may be able to breathe a little easier amid the coronavirus market sell-off. Its management will shift to Wilson Asset Management (WAM).
What has been announced?
The Board of Blue Sky Alternatives Access Fund has announced it has finalised all key commercial terms with all parties to change the manager to Wilson Asset Management (WAM) from Blue Sky Alternative Investments Ltd (ASX: BLA).
This has been a long-running process ever since the collapse of the Blue Sky manager.
The existing management services agreement (MSA) between Blue Sky Alternatives Access Fund and Blue Sky the manager will terminate subject to finalising legal documents and shareholder approval.
There are six areas where Blue Sky Alternatives Access Fund outlined some key commercial terms to investors:
Fees – The fees that Blue Sky Investment will be able to charge is a 1.2% management fee and a performance fee.
Performance fees – The portfolio performance fee deficit at 31 December 2018 has been agreed at $2.86 million. That date was agreed after which no deployments of new capital were made into Blue Sky Funds. This deficit has been allocated against 11 underperforming funds, which won't be entitled to any performance fees until the fund's share of the performance fee deficit has been recovered from rebates paid to Blue Sky Alternatives Access Fund from that particular fund.
Rebates – Under the MSA, BSAAF pays rebates to Blue Sky Alternatives Access Fund to refund management and performance fees charged at the investment fund level as and when they are received. Going forward, fund level managers will pay rebates on management fees and allocated fund performance fees when the cash is received from the fund.
Management fee stepdown – If an allocated fund held by Blue Sky Alternatives Access Fund underperforms for two consecutive years in the first five years following termination of the MSA, the management fee able to be charged to Blue Sky Alternatives Access Fund will be halved to 0.6%.
Voting rights – The voting rights attached to Blue Sky Investments are currently vested in BSAAF without restrictions. Following termination of the MSA, these voting rights will revert to Blue Sky Alternatives Access Fund, to be exercised by WAM.
Transitional services – BSAAF has agreed to provide 60 days transitional services after termination to assist WAM to ensure that monthly NTA reports and other disclosures and obligations can be met during the manager transition.
The Blue Sky Alternatives Access Fund Board said it thinks WAM is the best option because it has extensive experience in managing investment funds and it has hired investment professionals for the alternatives strategy. The Board also said that a different option of trying to sell its assets would take a long time, asset sales could lead to lower asset prices and a worsening share price discount to NTA. Attempting to terminate its agreement with BSAAF could have led to an expensive, prolonged and uncertain legal process.
What now?
Blue Sky Alternatives Access Fund went into a trading halt. At the share price of $0.82, it's trading at a 28% discount to the stated net assets at 31 January 2020.
This could be the start of a turnaround, but alternative assets may not be for everyone, particularly with the fairly high management fees.
